Bulletin seeks to clarify scope of coverage for ‘LTD ratios,’ how they are used

“Host state loan-to-deposit ratios” issued by federal banking agencies cover banks including community banks that have covered interstate branches — but does not apply to federal savings associations — according to a bulletin issued Wednesday by the federal regulator of both.

The bulletin issued by the Office of the Comptroller of the Currency (OCC BULLETIN 2018-21) refers to the ratios used by regulators to determine compliance with rules to keep banks from opening branches merely to gather deposits. The ratios for 2018 were released by the federal banking regulators June 18 and replace ratios issued the previous year (June 21, 2017).

More specifically, the ratios are used for determining compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (IBBEA). In addition to determining compliance with deposit production through branches, section 109 also prohibits branches of banks controlled by out-of-state bank holding companies from operating primarily for the purpose of deposit production.

Wednesday’s bulletin, OCC said, was meant to inform national banks about how the ratios are used to determine compliance with section 109 of the IBBEA (in addition to clarifying the scope of the requirements to include the community banks with interstate branches, but not the federal savings associations).

According to the bulletin, OCC regulations include specific tests in a two-step process for determining whether an interstate bank is lending appropriately in host states where it has branches.

A bank failing both steps is subject to sanctions, the bulletin notes.

“The first step in the process involves 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 bulletin notes. “A second step is conducted if a bank’s statewide LTD ratio is less than one-half of the published ratio for that state or if data are not available at the bank to conduct the first step.”

OCC said the second step further requires the appropriate agency to determine whether the bank is reasonably helping to meet the credit needs of the communities served by the bank’s interstate branches.

OCC Bulletin: Prohibition Against Interstate Deposit Production: Annual Host State Loan-to-Deposit Ratios

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