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Fed, Other Agencies Update Host State Loan-to-Deposit Ratios

bankThe Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency recently issued updated host state loan-to-deposit ratios that they will use to determine compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The regulation applies to banks that are chartered in one state but have a branch or branches in another state (the host state). The ratios are updated annually.

Section 109 of the Interstate Act, as it is often called, prohibits banks from establishing or acquiring branches in other states primarily for the purpose of deposit production. The regulations are aimed at preventing banks from taking deposits from a community without also helping to meet the credit needs of that community. The requirements also apply to branches of banks that are controlled by an out-of-state bank holding company.

The agencies test for compliance by comparing a bank's statewide loan-to-deposit ratio to the estimated host state loan-to-deposit ratio. (The updated ratios for each state and U.S. territory are listed here.) If a bank's statewide loan-to-deposit ratio is less than one-half of the official host state ratio, or if the data is not available to calculate the bank's ratio, the appropriate banking agency will determine whether the bank is reasonably helping to meet the credit needs of the communities. A bank that fails both steps is in violation of section 109.

July 15, 2013


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