Federal financial regulators have issued new state loan-to-deposit ratios to be used to determine compliance with the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
These ratios replace last year’s ratios, which were released on June 15, 2018. The new ratios were issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.
Section 109 of Riegle-Neal Interstate Banking and Branching Efficiency Act prohibits a bank from establishing or acquiring a branch or branches outside of its home state for the primary purpose of deposit production. Section 109 also prohibits branches of banks controlled by out-of-state bank holding companies from doing the same.
Section 109 also provides a process to test compliance with the requirements. The first step involves a loan-to-deposit ratio test that compares a bank’s statewide loan-to-deposit ratio to the host state loan-to-deposit ratio for banks in a particular state. The second step is conducted if a bank’s statewide loan-to-deposit ratio is less than one-half of the published ratio for that state. Also, the second step requires the appropriate agency to determine whether the bank is helping to meet the credit needs of the communities served by the bank’s interstate branches.
A bank that fails both steps is in violation of section 109. Thus, it would be subject to sanctions by the appropriate agency.