Bulletin details use of ‘loan-to-deposit’ ratios in curbing deposit production among interstate banks

How host state loan-to-deposit ratiosare used to determine national bank compliance with federal law prohibiting the use of interstate branches primarily for deposit production is covered under a bulletin issued Friday by the Office of the Comptroller of the Currency (OCC). The bulletin does not apply to federal savings institutions.

The bulletin refers to the state loan-to-deposit ratios updated in May by federal banking regulators. The ratios help to determine whether a bank may establish or buy a branch (or branches) without triggering prohibitions on doing so primarily for producing deposits.

The bulletin also notes section 109 of the Riegle–Neal Interstate Banking and Branching Efficiency Act of 1994 (IBBEA), which is implemented under OCC regulations. The regulation includes specific tests for determining whether an interstate bank is lending appropriately in host states where it has branches, according to the bulletin.

“Section 109 of the IBBEA provides a process to test compliance with the statutory requirements,” the bulletin states. “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. 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. 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.”

OCC Bulletin 2019-41: Annual Host State Loan-to-Deposit Ratios