OCC 2002-32 OCC BULLETIN Subject: Prohibition Against Interstate Deposit Production Description: Annual Loan-to-Deposit Ratios Date: July 22, 2002 TO: Chief Executive Officers and Compliance Officers of All National Banks, Department and Division Heads, and All Examining Personnel The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation recently issued updated host-state loan-to- deposit ratios that the banking agencies will use to determine compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Interstate Act). These ratios, which update data released June 2001, are attached. In general, section 109 prohibits any bank from establishing or acquiring a branch or branches outside of its home state primarily for the purpose of deposit production. Section 106 of the Gramm-Leach-Bliley Act of 1999 amended coverage of section 109 of the Interstate Act to include any branch of a bank controlled by an out-of- state bank holding company . Section 109 provides a process to test compliance with the statutory requirements. The first step in the process involves a loan-to-deposit ratio screen that compares a bank's statewide loan-to-deposit ratio to the host-state loan-to-deposit ratio for banks in a particular state. A second step is conducted if a bank's statewide loan-to-deposit ratio in a state is less than one-half of the published host-state loan-to-deposit ratio for that state or if data are not available at the bank to conduct the first step. The second step requires the appropriate banking agency to determine whether the bank is reasonably helping to meet the credit needs of the communities served by the bank. A bank that fails both steps is in violation of section 109 and is subject to sanctions by the banking agency. Due to the legislative intent against imposing regulatory burden, no additional data were collected from the institutions to implement section 109. Therefore, since insufficient lending data were available on a geographic basis to calculate the statewide ratios directly, the agencies used a proxy to estimate the host-state loan-to- deposit ratios. The agencies calculated the host-state loan-to-deposit ratios using data obtained from the Call Reports and the Summary of Deposits Reports, as of June 30, 2001, which were the most recently available data. For each home-state bank, the agencies calculated the percentage of the bank's total deposits attributable to branches located in its home state (determined from the Summary of Deposits Reports), and applied this percentage to the bank's total domestic loans (determined from the Call Reports) to estimate the amount of loans attributable to the home state. The host-state loan-to-deposit ratio was then calculated by separately totaling the loans and deposits for the home-state banks and then by dividing the sum of the loans by the sum of the deposits. Banks designated as limited-purpose or wholesale under the Community Reinvestment Act (CRA) and credit card banks (regardless of any CRA limited-purpose designation) were excluded from the host-state loan-to-deposit calculation, recognizing that these banks could have very large loan portfolios, but few, if any, deposits. In addition, beginning in 2001, special-purpose banks, including bankers' banks, were also excluded from the ratios because these banks do not engage in traditional deposit taking or lending. Inclusion of these banks could distort the ratios, thus hindering their use in carrying out the intent of the legislation. The host-state loan-to-deposit ratios, and any changes in the way the ratios are calculated, will be made available to the public on an annual basis. Questions about section 109 of the Interstate Act may be directed to your supervisory office or the Compliance Division at (202) 874-4428. _____________________________ David G. Hammaker Deputy Comptroller for Compliance Attachment--2002 Host State Loan-to-Deposit Ratios [ http://www.occ.treas.gov/ftp/bulletin/2002-32a.pdf ] .