How banks may use loan-to-deposit (LTD) ratios to comply with federal law regulating interstate deposits is the focus of a bulletin issued Thursday by the national bank regulator.
The Office of the Comptroller of the Currency (OCC) said the LTD ratios, issued May 31, are used to follow section 109 of the 1994 Riegle-Neal Interstate Banking and Branching Efficiency Act (IBBEA).
In the bulletin, the OCC notes that the ratios use data as of June 30, 2023, which exclude banks “designated for Community Reinvestment Act (CRA) purposes as wholesale, limited purpose, or special purpose banks.” The ratios are used, the OCC said, to compare a bank’s statewide LTD ratio with the host state LTD ratio for banks in a particular state.
The IBBEA bars banks from establishing or acquiring a branch or branches outside of their home states primarily to draw more deposits. Under additional statute, that includes any branch of a bank controlled by an out-of-state bank holding company.
There are two steps in the process of determining a bank’s compliance, OCC said in the bulletin.
“The first step in the process is an LTD ratio test that compares a bank’s statewide LTD ratio with the host state LTD ratio for banks in a particular state,” the agency said. “The second step is conducted if a bank’s statewide LTD ratio is less than 50% of the published host state LTD for that state or if data are insufficient to complete step one. The second step requires the OCC to determine whether the bank is reasonably helping to meet the credit needs of the communities served by the bank’s interstate branches. A bank that fails both steps is subject to sanctions by the OCC.”
Prohibition Against Interstate Deposits: Annual Host State Loan-to-Deposit Ratios