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Federal Reserve Bank
OF DALLAS
ROBERT

D. M C T E E R , J R .

DALLAS, TEXAS

p re s id e n t
AND

C H IE F E X E C U T IV E

O F F IC E R

April 4, 1997

75265-5906

Notice 97-31

TO: The Chief Executive Officer o f each
financial institution and others concerned
in the Eleventh Federal Reserve District

SUBJECT
Prohibition Against Use of
Interstate Branches Primarily for
Deposit Production
DETAILS
The Board o f Governors o f the Federal Reserve System, along with the Office o f the
Comptroller o f the Currency and the Federal Deposit Insurance Corporation, is requesting public
comment on a proposal to adopt uniform regulations to implement Section 109 o f the RiegleNeal Interstate Banking and Branching Efficiency Act o f 1994 (Interstate Act).
The proposed rule would prohibit any bank from establishing or acquiring a branch
or branches outside its home state under the Interstate Act primarily for deposit production. In
addition, the rule would provide guidelines for determining whether such bank is reasonably
helping to meet the credit needs o f the communities served by the interstate branches.
The Board must receive comments by May 2, 1997. Please address comments to
William W. Wiles, Secretary, Board o f Governors o f the Federal Reserve System, 20th Street
and Constitution Avenue, N.W., Washington, D.C. 20551. All comments should refer to Dockei
No. R-0962.

ATTACHMENT
A copy o f the Board’s notice as it appears on pages 12729-38, Vol. 62, No. 51, o f
the Federal Register dated March 17, 1997, is attached.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333 -4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston
Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

MORE INFORMATION
For more information, please contact Dean Pankonien at (214) 922-6154. For
additional copies o f this Bank’s notice, please contact the Public Affairs Department at (214)
922-5254.

Monday
March 17, 1997

Part IV

Department of the
Treasury
Office of the Comptroller of the Currency

Federal Reserve System
Federal Deposit Insurance
Corporation
12 CFR Part 25, et al.
Prohibition Against Use of Interstate
Branches Primarily for Deposit
Production; Proposed Rule

12729

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Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Proposed Rules

DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12CFR Part 25
[Docket No. 97-04]
RIN 1557-AB50

FEDERAL RESERVE SYSTEM
12CFR Parts 208 and 211
[Regulations H and K; Docket No. R-0962]

FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 369
RIN 3064—
AB97

Prohibition Against Use of interstate
Branches Primarily for Deposit
Production
AGENCIES: Office of the Comptroller of
the Currency, Treasury (OCC); Board of
Governors of the Federal Reserve
System (Board); and Federal Deposit
Insurance Corporation (FDIC).
ACTION: Joint notice of proposed
rulemaking.

The OCC, Board, and FDIC
(collectively, agencies) propose to adopt
uniform regulations to implement
section 109 (section 109) of the RiegleNeal Interstate Banking and Branching
Efficiency Act of 1994 (Interstate Act).
As required by section 109, the
proposed rule would prohibit any bank
from establishing or acquiring a branch
or branches outside of its home state
under the Interstate Act primarily for
the purpose of deposit production, and
would provide guidelines for
determining whether such bank is
reasonably helping to meet the credit
needs of the communities served by the
interstate branches.
DATES: Comments must be received on
or before May 2, 1997.
SUMMARY:

ADDRESSES:

requires the agencies to prescribe
Governors of the Federal Reserve
uniform rules that prohibit the use of
System, 20th Street and Constitution
the authority under the Interstate Act to
Avenue, NW., Washington, DC 20551.
engage in interstate branching primarily
Comments also may be delivered to the
for the purpose of deposit production.2
Board’s mail room between 8:45 and
The agencies must also provide
5:15 p.m. on weekdays, and to the
guidelines to ensure that banks that
security control room at all other times.
operate such branches are reasonably
The mail room and the security control
helping to meet the credit needs of the
room are accessible from the courtyard
communities served by the branches.
entrance on 20th Street between
Constitution Avenue and C Street, NW., Congress enacted section 109 to ensure
that the new interstate branching
Comments may be inspected in Room
MP-500 of the Martin Building between authority provided by the Interstate Act
would not result in the taking of
9:00 a.m. and 5:00 p.m. weekdays,
deposits from a community without
except as provided in 12 CFR 261.8 of
the Board’s Rules Regarding Availability concern for the credit needs of that
community. See H.R. Rep. No. 651,
of Information.
103d Cong., 2d Sess. 62 (1994).
FDIC: Written comments should be
The agencies’ proposed uniform rules
directed to Jerry L. Langley, Executive
apply to any bank that establishes or
Secretary, Attention: Room F-400,
acquires, directly or indirectly, a branch
Federal Deposit Insurance Corporation,
under the authority of the Interstate Act
550 17th Street NW., Washington, DC
or amendments made by the Interstate
20429. Comments may be hand
delivered to Room F -4 0 0 ,1776 F Street Act. These branches are referred to as
“covered interstate branches.” The
NW., Washington, DC 20429 on
proposed rules provide that, beginning
business days between 8:30 a.m. and 5
no earlier than one year after a bank
p.m. (Fax number (202) 898-3838;
establishes or acquires a covered
Internet address: comments@fdic.gov).
interstate branch, the appropriate
Comments will be available for
agency will determine whether
inspection and photocopying in Room
7118, 550 17th Street, NW., Washington, reasonably available data exist that will
DC 20429, between 9 a.m. and 4:30 p.m. enable the agency to perform a “loan-todeposit ratio screen.”
on business days.
The loan-to-deposit ratio screen
FOR FURTHER INFORMATION CONTACT:
compares the bank’s loan-to-deposit
OCC: Neil M. Robinson, Senior
ratio within the state where the bank’s
Attorney, or Kevin L. Lee, Senior
covered interstate branch is located
(covered interstate branch loan-toAttorney, Community & Consumer Law
deposit ratio) with the loan-to-deposit
Division (202) 874-5750; or Andrew T.
ratio of banks whose home state is that
Gutierrez, Attorney, Legislative and
state (host state loan-to-deposit ratio). If
Regulatory Activities Division (202)
the loan-to deposit ratio screen indicates
874-5090.
Board: Diane Koonjy, Senior
that the bank’s covered interstate branch
Attorney, (202) 452-3274, Lawranne
loan-to-deposit ratio is at least 50
Stewart, Senior Attorney, (202) 452percent of the host state loan-to-deposit
3513, or, with respect to foreign banks,
ratio, no further analysis is required.
Christopher Clubb, Senior Attorney,
However, if the appropriate agency
(202) 452-3778, Legal Division; or
determines that the bank’s covered
Shawn McNulty, Assistant Director,
interstate branch loan-to-deposit ratio is
(202) 452-3946, Division of Consumer
less than 50 percent of the host state
and Community Affairs.
loan-to-deposit ratio, or determines that
FDIC: Louise Kotoshirodo, Review
reasonably available data do not exist
Examiner, Division of Consumer Affairs that will permit the agency to determine
(202) 942-3599; Doris L. Marsh,
the bank’s covered interstate branch
Examination Specialist, Division of
Supervision (202) 898-8905; or Gladys
2 Before th e Interstate Act, foreign banks were
Cruz Gallagher, Counsel, Legal Division perm itted to establish agencies and lim ited
branches outside their hom e state u n d er the
(202) 898-3833.
International Banking Act (IBA) (12 U.S.C. 3101 et

OCC: Comments should be directed to
Docket No. 97-04, Communications
Division, First Floor, Office of the
Comptroller of the Currency, 250 E
Street, SW., Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
Comments will be available for
Background
inspection and photocopying at that
address. In addition, comments may be
The Interstate A ct1 provides
sent by facsimile transmission to FAX
expanded authority for a domestic or
number (202) 874-5274, or by electronic foreign bank to establish or acquire a
mail to
branch in a state other than the bank’s
REGS.COMMENTS@OCC.TREAS.GOV. home state (host state). Section 109
Board: Comments should refer to
Docket No. R-0962, and may be mailed
1 Pub. L. 103-328, 108 Stat. 2338, 12 U.S.C.
to William W. Wiles, Secretary, Board of 1835a.

seq.). Since this authority was not conferred by the
Interstate Act, or any am endm ent by th e Interstate
Act to any other provision of law, banks that only
establish interstate agencies and lim ited branches
u n d er the IBA are not covered by section 109.
Domestic banks m ay also have branches located
outside a ban k ’s hom e state that are not w ithin the
scope of section 109 because they are not
established or acquired pursuant to authority in the
Interstate Act. For example, dom estic banks may
have branches grandfathered u n d er the McFadden
Act (12 U.S.C. 36) and branches retained following
an interstate relocation u n der 12 U.S.C. 30.

Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Proposed Rules
loan-to-deposit ratio, the agency will
perform a “credit needs determination.”
Under the credit needs determination,
the appropriate agency will review the
loan portfolio of the bank and determine
whether the bank is reasonably helping
to meet the credit needs of the
communities served by the bank in the
host state. Consistent with section 109,
the agencies will consider the following
in making a credit needs determination:
(1) Whether the covered interstate
branches were formerly part of a failed
or failing depository institution; (2)
whether the covered interstate branches
were acquired under circumstances
where there was a low loan-to-deposit
ratio because of the nature of the
acquired institution’s business; (3)
whether the covered interstate branches
have a higher concentration of
commercial or credit card lending, trust
services, or other specialized activities;
(4) the ratings received by the bank
under the Community Reinvestment Act
of 1977 (CRA)(12 U.S.C. 2901 et seq.);
(5) economic conditions, including the
level of loan demand, within the
communities served by the covered
interstate branches; and (6) the safe and
sound operation and condition of the
bank.
If the appropriate agency concludes
after taking these considerations into
account that the bank is not reasonably
helping to meet the credit needs of the
communities served by the bank in the
host state: (1) The appropriate agency
may order that covered interstate
branches in the host state be closed
unless the bank provides reasonable
assurances to the satisfaction of the
appropriate agency that the bank has an
acceptable plan that will reasonably
help to meet the credit needs of the
communities served by the bank in the
host state; and (2) the bank may not
open a new covered interstate branch in
the host state unless the bank provides
reasonable assurances to the satisfaction
of the appropriate agency that the bank
will reasonably help to meet the credit
needs of the community that the new
branch will serve.
Before exercising the authority to
order closure of branches, the agencies
will issue a notice of intent to close
covered interstate branches to the bank
and schedule a hearing under the
provisions of section 8(h) of the Federal
Deposit Insurance Act (12 U.S.C.
1818(h)).
Regulatory Burden and Limitations on
Available Data

The language of section 109 and its
legislative history indicate that Congress
intended that the provision not impose
any additional regulatory or paperwork

burdens on any institution. See H. Rep.
No. 651, 103d Cong., 2nd Sess. 62
(1994). Section 109 directs the agencies
to calculate the covered interstate
branch loan-to-deposit ratio from
available information, including an
agency’s sampling of the bank’s loan
files during an examination, or such
data as are otherwise available. The
agencies are also required by section
109 to calculate the host state loan-todeposit ratio as determinable from
relevant sources.
As discussed in greater detail later,
data that are currently required to be
reported by banks have significant
limitations for purposes of making the
calculations described in section 109. In
addition, the agencies’ supervisory
experience indicates that data collection
and availability vary substantially from
bank to bank. Although sampling during
an examination may produce relevant
data, the extent and duration of an
examination to gather complete
information could impose significant
regulatory burdens on the bank.
To address these concerns in a
manner consistent with section 109’s
intent not to impose additional
regulatory burdens on banks, the
agencies propose to determine the
covered interstate branch loan-todeposit ratio by reviewing the relevant
data reasonably available for each bank
covered by the proposed rule. These
data would include deposit and loan
data that are readily available and
provided by the bank, and data already
required to be reported by the bank or
reasonably available to the agencies
during an examination. If these data are
sufficient to determine that a bank’s
covered interstate branch loan-todeposit ratio is less than 50 percent of
the host state loan-to-deposit ratio, or if
reasonably available data are
insufficient to calculate the bank’s
covered interstate branch loan-todeposit ratio, the agencies would make
a credit needs determination for the
bank. During the credit needs
determination, the bank may provide
the agencies with any relevant
information, including deposit and loan
data.
The agencies believe that this
approach will accomplish the purpose
of section 109 while minimizing
regulatory burden on the bank to
produce or to assist the agencies in
obtaining data to calculate the bank’s
covered interstate branch loan-todeposit ratio. In this regard, the ratios
required to be calculated provide a
screen to identify when the appropriate
agency is required to make a more
comprehensive credit needs
determination under section 109. The

12731

proposed rule ensures that the credit
needs determination will be made in all
cases in which the appropriate agency is
unable to readily verify compliance by
means of the section 109 loan-to-deposit
ratio screen.
The agencies seek comment on all
aspects of the proposal, particularly data
availability issues as they relate to the
required calculations of the loan-todeposit ratios for banks with covered
interstate branches and the host states,
and the agencies’ proposed resolutions
of these issues. The agencies also seek
comment on all other aspects of the
proposed rule.
Available Deposit and Loan Data
The most relevant data for calculating
the ratios required under section 109 are
data that provide the geographic
location of the depositor or borrower. As
discussed later, currently available data
have significant limitations with respect
to depositor or borrower location.
Deposit Data
Domestic banks report deposit data to
the agencies primarily through three
submissions: (1) The annual Summary
of Deposits, (2) the quarterly
Consolidated Reports of Condition and
Income (Call Reports), and (3) the
Report of Transaction Accounts, Other
Deposits, and Vault Cash (FR 2900). The
Summary of Deposits collects deposit
data on a branch-by-branch basis and
can be aggregated by state or other
geographical region. The data in this
report reflect the location where
deposits are booked, however, and not
the location of the depositor. Deposits
may be booked at centralized locations
and may include deposits from sources
in other states. The Summary of
Deposits therefore has limitations as a
source of deposit data for calculating
loan-to-deposit ratios in a particular
area or state. The Call Report and the FR
2900 also provide deposit data that are
of limited value in making the necessary
calculations. The data in these reports
are collected for each institution on a
consolidated basis and are not
segregated by geographic area.
The data reported by foreign banks
have similar limitations. The principal
source of deposit data for U.S. branches
of foreign banks is the Report of Assets
and Liabilities of United States
Branches and Agencies of a Foreign
Bank (FFIEC 002). While this form
separately identifies U.S. and non-U.S.
depositors, it does not otherwise
segregate depositors by location.
Moreover, since foreign banks generally
compete in wholesale deposit markets,
the location where deposits are booked
is likely to bear little relation to the

12732

Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Proposed Rules

location of the depositors. Other sources
of deposit data for foreign banks are the
FDIC’s Summary of Deposits (for
insured U.S. branches of foreign banks,
which are relatively few in number) and
the FR 2900—Report of Transaction
Accounts, Other Deposits, and Vault
Cash (for U.S. branches of foreign banks
with consolidated worldwide assets in
excess of $1 billion) which, for the
reasons previously discussed, are of
limited use in the loan-to-deposit
calculations required under section 109.
Loan data
The quarterly Call Reports provide
information about the lending activity of
domestic banks on a consolidated basis
and do not require this information to
be segregated by state or branch.
Moreover, the Call Reports reflect only
those loans actually held on the books
of the bank as of the end of the reporting
period, and do not reflect loans that
have been originated and sold or that
have been booked through affiliates.
Certain types of loans by domestic
banks are required to be reported under
the Home Mortgage Disclosure Act (12
U.S.C. 2801 et seq.) (HMDA) and the
new CRA regulations promulgated by
the Federal financial supervisory
agencies (60 FR 22156). An institution
that is subject to HMDA reporting
requirements must report annually the
number of home-purchase and homeimprovement loans originated or
purchased, and refinancings of both, by
geographic location of the property
subject to the mortgage.3 Additionally,
large institutions are required under the
new CRA regulations to report the
following information annually on loans
to small businesses and small farms,
aggregated for each census tract or block
numbering area: (1) Number and
amount of loans with an original
amount of $100,000 or less, more than
$100,000 and less than or equal to
$250,000, and more than $250,000; and
(2) number and amount of loans to small
businesses and small farms with gross
annual revenues of $1 million or less
(using the revenues the institution
considered in making the credit
3 HMDA im poses reporting requirem ents on
federally insured depository institutions th at in any
year make at least one first-lien hom e-purchase loan
secured by a one- to four-family dwelling, other
than institutions that did n ot have a hom e or branch
office in an MSA or that h ad assets of $28 m illion
or less at the end of the previous calendar year. The
reporting requirem ents also are im posed on certain
mortgage lending subsidiaries and affiliates of
depository institutions and in dependent mortgage
com panies, unless the subsidiary, affiliate, or
in dependent com pany did not have a hom e or
branch office in an MSA at the end of the previous
calendar year, or had, together w ith its parent,
assets of $28 m illion or less and originated less than
100 mortgages in the previous calendar year.

decision).4 While these sources contain
lending data broken down by
geographical location, the limited nature
of the types of loans reported and of the
lenders required to report significantly
limit the usefulness of these data for
purposes of calculating the ratios
required under section 109.
Loan data for U.S. branches of foreign
banks are also reported on an aggregate
basis in the FFIEC 002, which
distinguishes only between U.S. and
non-U.S. borrowers for some types of
loans. These branches typically make
very few loans that are subject to HMDA
reporting requirements.
The Section 109 Loan-to-Deposit Ratio
Screen

through sampling of loan files at the
bank’s covered interstate branches.
Under the proposed rule, the agencies
would take into account all reasonably
available data relevant to calculating the
covered interstate branch loan-todeposit ratio on a case-by-case basis.
The agencies would consider any
deposit and loan data that are readily
available and provided by the bank, and
data reasonably available to the agencies
through currently required reports and
the examination process. In determining
whether to sample a bank’s loan and
deposit records, the agencies would
consider whether the information would
accurately reflect the bank’s activities in
a host state, and whether the
information could be obtained without
imposing an undue regulatory burden
on the bank. As previously noted, the
agencies would conduct a credit needs
determination in all cases where the
agencies concluded that sufficient data
were not available without imposing an
additional regulatory burden on the
bank to calculate the covered interstate
branch loan-to-deposit ratio.
The agencies seek comment on this
approach and alternative approaches for
accomplishing the purpose of section
109 without imposing regulatory
burden. In particular, the agencies seek
comment on the availability of deposit
and lending data broken down by
geographical area, and banking practices
for allocating deposits and loans to
branches or particular states. The
agencies also seek comment on the
regulatory burden associated with
providing data, or permitting the
agencies to obtain data through
sampling in the examination process,
that would be necessary to calculate a
bank’s covered interstate branch loan-todeposit ratio.

Covered Interstate Branch Loan-toDeposit Ratio
Section 109 indicates that in
calculating the covered interstate branch
loan-to-deposit ratio, the agencies
should consider available information,
including information from the agency’s
sampling of the bank’s loan files during
an examination. As discussed later,
sampling loan files to calculate this
loan-to-deposit ratio could result in
significantly increased regulatory
burden.
Sampling at a particular branch could
produce unreliable data if a bank books
loans or deposits at locations outside
the state where the borrowers or
depositors are located. In this regard,
many domestic and foreign institutions
consolidate certain types of business at
the main office or other location. For
example, commercial loans and deposits
may be consolidated at a bank’s main
office, while mortgage lending may be
booked at a mortgage lending
subsidiary. Although the loans may
have been made through a bank’s
Host State Loan-to-Deposit Ratio
covered interstate branch, they would
The agencies anticipate that the host
not be booked at that branch. Sampling
state loan-to-deposit ratio would be
of loan files also would not provide
calculated jointly by the agencies from
information on loans that have been
the data reported by banks in the Call
sold. Since practices regarding loan
Reports by dividing the total dollar
sales differ from bank to bank, there
amount of outstanding loans held by
may be large variations in the loan-tohome state banks by the total dollar
deposit ratios for individual banks over
amount of deposits held by such banks.
time that do not reflect underlying
lending activity. If loans were booked at The ratio, which would be periodically
updated, and the methodology used to
the covered interstate branch closest to
calculate the ratio would be made
the borrower, the agencies would have
available to the public. Determining the
to expand significantly the extent and
appropriate method of calculating a
duration of their current examinations
ratio that accurately reflects the deposit
in order to obtain this information
taking and lending activities of home
4 These reporting requirem ents do not apply to a state banks raises several issues
bank that, as of December 31 of either of the prior
discussed later.
tw o calendar years, h ad total assets of less than
Data for specialized banks that do not
$250 m illion and was independent or an affiliate of
engage in traditional deposit taking or
a holding com pany that, as of December 31 of either
lending may distort the host state loanof the prior two calendar years, had total banking
and thrift assets of less than $1 billion.
to-deposit ratio. Limited purpose banks,

Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Proposed Rules
such as credit card banks and wholesale
banks, could have very large loan
portfolios, but few, if any deposits. In
addition, certain loan and deposit data
reported on the Call Report relate to
international banking activities that are
not attributable to any state. These data
include loans to banks in foreign
countries, commercial and industrial
loans to non-U.S. addresses, loans to
foreign governments and official
institutions, deposits from banks in
foreign countries, and deposits from
foreign governments and official
institutions. The agencies anticipate that
the host state loan-to-deposit ratio
would exclude data from the types of
limited purpose banks and the
categories of Call Report data discussed
earlier.
The deposit taking and lending
activities of multistate banks also could
distort the host state loan-to-deposit
ratio of their home states. Accounting
for these activities, however, is difficult
because consolidated reporting does not
allow assignment of a multistate bank’s
loans and deposits to particular states.
Attributing all loans and deposits from
banks with operations in more than one
state to its home state could materially
distort the host state loan-to-deposit
ratio, particularly since multistate
banks, which are likely to be large
institutions, generally maintain higher
loan-to-deposit ratios than smaller
institutions.5 On the other hand,
excluding multistate banks completely
also could distort the host state loan-todeposit ratio.
Multistate banks that have more than
50 percent of their branches outside
their home state could be excluded from
the host state loan-to-deposit ratio
calculation since these institutions
would be more likely to have more than
50 percent of their deposits and loans
originated outside the host state under
consideration. However, any
methodology that excludes multistate
banks could eventually result in a host
state with few, if any, banks eligible for
calculating the host state loan-to-deposit
ratio as interstate branching becomes
more prevalent. Under these
circumstances, the agencies may need to
include multistate banks.
The agencies seek comment on the
approaches to resolving the issues
discussed earlier, and on any
methodology that, using available data,
would most accurately reflect the
deposit taking and lending activities of
retail banks in a host state. Commenters
should also consider the extent to which
5 See Profit and Balance Sheet Developments at
U.S. Commercial Banks in 1995, Federal Reserve
Bulletin, June 1996, table A.2, pgs. 496-505.

a methodology could calculate a host
state loan-to-deposit ratio that would be
roughly comparable to the calculation of
the bank’s covered interstate branch
loan-to-deposit ratio. In addition, the
agencies anticipate that any
methodology used to calculate the host
state loan-to-deposit ratio could be
adjusted in the future to take into
account changes in reporting
requirements or additional sources of
relevant data. In this light, the agencies
have not included the methodology for
calculating the host state loan-to-deposit
ratio in the regulation and seek
comment on this approach.
Credit Needs Determination

As discussed earlier, the proposed
rule would require the appropriate
agency to review the loan portfolio of a
bank and determine whether the bank is
reasonably helping to meet the credit
needs of the communities served by the
bank in the host state if the bank’s
covered interstate branch loan-todeposit ratio is less than 50 percent of
the host state loan-to-deposit ratio, or if
reasonably available data are
insufficient to calculate the bank’s
covered interstate branch loan-todeposit ratio.
In making a credit needs
determination, the appropriate agency
will consider all of the factors specified
in section 109, including the
circumstances under which the
branches were acquired, the nature of
the branches’ business, economic
conditions, safety and soundness
considerations, and the CRA rating of
the bank. The agencies also would
consider any information provided by
the bank, including loan and deposit
data.
The agencies believe that it is
consistent with the language and intent
of section 109 to carefully weigh the
CRA rating of the bank in making a
credit needs determination under the
factors enumerated in section 109.
Section 109 specifies the bank’s CRA
rating as a factor to be considered, and
most of the other considerations listed
in section 109 are taken into account
under the new CRA regulations as part
of the performance context used to rate
a bank’s CRA performance.6
6 The new CRA regulations perm it the agencies to
evaluate a bank’s perform ance in the context of a
num ber of considerations, including the nature of
the bank’s product offerings and business strategy,
the lending opportunities w ithin a bank’s
assessm ent area, and any constraints on the bank
such as the financial condition of th e bank, the
econom ic clim ate (national, regional and local), and
safety and soundness lim itations. See 12 CFR
25.21(b) (OCC), 12 CFR 228.21(b) (Board) and 12
CFR 345.21(b) (FDIC).

12733

For a bank with interstate branches,
section 110 of the Interstate Act requires
separate written evaluations of the
institution’s CRA performance: as a
whole; in each state in which it
maintains a branch; and in any
multistate metropolitan area in which it
maintains a branch in two or more
states. Section 110 also requires that the
statewide written evaluation of a
multistate bank must contain separate
discussions of the institution’s
performance in any metropolitan area in
the state in which it maintains a branch,
as well as in the nonmetropolitan area
of the state if a branch is maintained
there. Data considered in evaluating the
bank’s CRA performance in a particular
state would include information that
contains the geographical location of
housing-related, small business and
small farm loans that are required to be
reported under HMDA and the new
CRA regulations. Accordingly, the
agencies believe that information from a
CRA performance examination is
particularly relevant in determining
compliance with section 109 because it
directly evaluates a bank’s efforts to
assist in meeting the credit needs of its
communities.
The agencies would expect that a
credit needs determination for a bank
with satisfactory or better ratings for
CRA performance in the host state
would be favorable. The agencies would
also expect that a credit needs
determination for a bank with less than
satisfactory ratings for CRA performance
in the host state would be adverse
unless mitigated by the other factors
enumerated in section 109. If the section
109 review is not performed in
connection with the bank’s CRA
performance examination, the agencies
would also consider any available
information that would indicate an
improvement or weakening in a bank’s
CRA performance since its most recent
performance rating.
Some entities that could be subject to
section 109, including special purpose
banks and uninsured branches of
foreign banks,7 are not evaluated for
CRA performance by the agencies. For
these institutions, the agencies propose
to use the new CRA regulations as
guidelines in making a credit needs
7 A special p urpose bank does not perform
com m ercial or retail banking services by granting
credit to the public in the ordinary course of
business, and is not evaluated for CRA perform ance
by the agencies. See 12 CFR 25.11(c)(3) (OCC); 12
CFR 228.11(c)(3) (Board); and 12 CFR 345.11(c)(3)
(FDIC). An u ninsured branch of a foreign bank also
is not evaluated for CRA perform ance unless it
results from an acquisition described in section
5(a)(8) of the IBA (12 U.S.C. 3103(a)(8)). See 12 CFR
25.11(c)(2) (OCC); 12 CFR 228.11(c)(2) (Board); and
12 CFR 345.11(c)(1) (FDIC).

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Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Proposed Rules

determination. However, the new CRA
regulations would provide guidance
only for determining the relevance of a
particular activity to the credit needs
determination, and would not obligate
the institution to have a record of
performance under the CRA or require
that the bank pass any performance tests
in the new CRA regulations.
The agencies also intend to give
substantial weight to the factor in
section 109 relating to specialized
activities in making a credit needs
determination for institutions not
evaluated under the CRA. For example,
most branches of foreign banks derive
substantially all of their deposits from
the wholesale deposit markets that are
generally national or international in
scope.8 The agencies believe that this
approach is consistent with section
109’s overall purpose of preventing
banks from using the Interstate Act to
establish branches primarily to gather
deposits in their host state without
engaging in activities designed to
reasonably help meet the credit needs of
the communities served by the bank in
the host state.
Before a bank could be sanctioned
under section 109, the appropriate
agency would be required to
demonstrate that the bank failed to
comply with the section 109 loan-todeposit ratio screen as well as failed to
reasonably help in meeting the credit
needs of the communities served by the
bank in the host state. Accordingly, the
proposed rule would require the
agencies to determine a bank’s
compliance with the section 109 loanto-deposit ratio screen, even if the
agencies previously determined that the
data are not reasonably available.
The agencies seek comment on the
proposed approach for making credit
needs determinations, particularly the
proposal to make credit needs
determinations when data are
insufficient to calculate the covered
interstate branch loan-to-deposit ratio,
and alternative approaches for
accomplishing the purpose of section
8 U.S. branches of foreign banks generally accept
only un in su red w holesale deposits. In 1991, the
Federal Deposit Insurance Corporation
Im provem ent Act am ended the IBA to prohibit U.S.
branches of foreign banks from taking deposits in
am ounts of less than $100,000, other than through
the relatively few branches th at w ere already
insured by the FDIC in 1991. 12 U.S.C. 3104(d).
Congress reaffirmed this prohibition in the
Interstate Act, directing the OCC and the FDIC to
revise their regulations to reduce further the
opportunities for retail deposit-taking available to
these branches. See section 107(b) of the Interstate
Act. As a result, interstate branches of foreign banks
established un d er the Interstate Act cannot take
retail deposits or draw a significant level of deposits
from the com m unity, retail-oriented deposit
markets w here the branches are located.

109 without imposing regulatory
burden. The agencies also solicit
comments on whether the agencies
should carefully weigh the extent to
which banks receive deposits from the
host state if they are evaluated by the
agencies under the CRA but engage in
specialized activities.
Timing o f Review and Agency
Consultation
The agencies anticipate that they will
conduct a review under section 109 for
all banks evaluated for CRA
performance when the agencies initially
rate the CRA performance of an
interstate bank in a particular state as
required by section 110 of the Interstate
Act. Subsequent reviews, and reviews of
banks not subject to CRA evaluations,
would be conducted as deemed
appropriate by the agencies. The
agencies also intend to coordinate and
consult in applying section 109 to banks
that are subject to regulation by more
than one agency. The agencies seek
comment on these proposals for
conducting section 109 reviews.
Regulatory Flexibility A ct Analysis
Consistent with the requirement in
section 109 that the agencies use only
available information to conduct the
relevant analyses, the proposed rule
does not impose any burden on banks
beyond what is required by statute.
Thus, the agencies reasonably believe
that the rule, if promulgated, will not
have a significant economic impact on
a substantial number of small entities.
However, in light of the issues
discussed previously in the preamble to
the proposed rule relating to data
availability, the agencies seek the views
of interested parties on whether they
believe that the proposed rule would
have a significant impact on a
substantial number of small business
entities in accord with the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.).
The agencies note that the proposal
affects only banks that have branches in
more than one state, which are likely to
be primarily larger banks. Consistent
with Congressional intent, the proposal
would not require any additional
paperwork or regulatory reporting. As
discussed earlier, however, the agencies
are concerned that the proposal would
create additional regulatory burden for
some institutions with covered
interstate branches, as some institutions
may be subject to more extensive
examinations or requests for
information necessary to obtain the data
required under the proposed rule. In
practice, institutions subject to the rule
may need to provide additional data to
examiners to avoid prolonged

examinations. The agencies have
requested comment on alternatives for
reducing regulatory burden under the
proposed rule.
Paperwork Reduction Act

The agencies have determined that
this proposal would not increase the
regulatory paperwork burden of banking
organizations pursuant to the provisions
of the Paperwork Reduction Act (44
U.S.C. 3501 et seq.).
OCC Executive Order 12866
Determination

The Office of Management and Budget
has concurred with the OCC’s
determination that this proposal is not
a significant regulatory action under
Executive Order 12866.
OCC Unfunded Mandates Reform Act of
1995 Determination

The OCC has determined that this
proposal would not result in
expenditures by State, local, and tribal
governments, or by the private sector, of
$100 million or more in any one year.
Accordingly, a budgetary impact
statement is not required under section
202 of the Unfunded Mandates Reform
Act of 1995.
List of Subjects

12 CFR Part 25
Community development, Credit,
Investments, National banks, Reporting
and recordkeeping requirements.
12 CFR Part 208
Accounting, Agriculture, Banks,
banking, Confidential business
information, Crime, Currency, Federal
Reserve System, Mortgages, Reporting
and recordkeeping requirements,
Securities.
12 CFR Part 211
Exports, Federal Reserve System,
Foreign banking, Holding companies,
Investments, Reporting and
recordkeeping requirements.
12 CFR Part 369
Banks, banking, Community
development.
Office of the Comptroller of the
Currency
12 CFR CHAPTER I

Authority and Issuance

For the reasons set forth in the joint
preamble, the Office of the Comptroller
of the Currency proposes to amend part
25 of chapter I of title 12 of the Code
of Federal Regulations as follows:

Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Proposed Rules

12735

§25.64 Credit needs determination.
interstate branching authority granted
by the Interstate Act, or any amendment
(a) In general. The OCC will review
made by the Interstate Act to any other
the loan portfolio of the bank and
1. The authority citation for part 25 is provision of law; or
determine whether the bank is
revised to read as follows:
(2) Could not have been established or reasonably helping to meet the credit
Authority: 12 U.S.C. 21, 22, 26, 27, 30, 36,
acquired outside of the bank’s home
needs of the communities served by the
93a, 161, 215, 215a, 481, 1814, 1816, 1828(c),
state but for the establishment or
bank in the host state.
1835a, 2901 through 2907, and 3101 through
acquisition of a branch described in
(b) Guidelines. The OCC will use the
3111.
paragraph (b)(1) of this section.
following considerations as guidelines
(c) Covered interstate branch loan-to- when making the determination
2. Part 25 is amended by adding a
deposit ratio means the ratio of a bank’s pursuant to paragraph (a) of this section:
new subpart E to read as follows:
loans to its deposits in a state in which
(1) Whether covered interstate
Subpart E— Prohibition Against Use of
the bank has a covered interstate
branches were formerly part of a failed
Interstate Branches Primarily for
branch, as determined by the OCC.
or failing depository institution;
Deposit Production
(d) Federal branch means federal
(2) Whether covered interstate
branches were acquired under
branch as that term is defined in 12
Sec.
circumstances where there was a low
U.S.C. 3101(7) and 12 CFR 28.11(i).
25.61 Authority, purpose, and scope.
(e) Home state means:
loan-to-deposit ratio because of the
25.62 Definitions.
(1) With respect to a state bank, the
nature of the acquired institution’s
25.63 Loan-to-deposit ratio screen.
state that chartered the bank;
business or loan portfolio;
25.64 Credit needs determination.
(2) With respect to a national bank,
(3) Whether covered interstate
25.65 Sanctions.
the state in which the main office of the branches have a high concentration of
Subpart E— Prohibition Against Use of
bank is located; and
commercial or credit card lending, trust
(3) With respect to a foreign bank, the services, or other specialized activities,
Interstate Branches Primarily for
home state of the foreign bank as
Deposit Production
including the extent to which the
determined in accordance with 12
covered interstate branches accept
§25.61 Authority, purpose, and scope.
U.S.C. 3103(c) and 12 CFR 28.11(o).
deposits in the host state;
(a) Authority. The authority for this
(f) Host state means a state in which
(4) The CRA ratings received by the
part is 12 U.S.C. 21, 22, 26, 27, 30, 36,
a bank establishes or acquires a covered bank, if any, and if the credit needs
93a, 161, 215, 215a, 481, 1814, 1816,
interstate branch.
determination is not made concurrently
1828(c), 1835a, 2901 through 2907, and
(g) Host state loan-to-deposit ratio
with a CRA evaluation, available
3101 through 3111.
means, with respect to a particular host
information that would indicate an
(b) Purpose. The purpose of this
state, the ratio of total loans in the host
improvement or weakening in the
section is to implement section 109 (12
state relative to total deposits from the
bank’s CRA performance since its most
U.S.C. 1835a) of the Riegle-Neal
host state for all banks (including all
recent CRA evaluation;
Interstate Banking and Branching
institutions covered under the
(5) Economic conditions, including
Efficiency Act of 1994 (Pub. L. 103-328, definition of “bank” in 12 U.S.C.
the level of loan demand, within the
108 Stat. 2338) (Interstate Act).
1813(a)(1)) that have that state as their
communities served by the covered
(c) Scope. (1) This subpart applies to
home state, as updated periodically and interstate branches;
any national bank that has operated a
made available to the public.
(6) The safe and sound operation and
covered interstate branch for a period of
(h) State means state as that term is
condition of the bank; and
at least one year, and any foreign bank
defined in 12 U.S.C. 1813(a)(3).
(7) The OCC’s Community
that has operated a covered interstate
Reinvestment Act Regulations (subparts
§ 25.63 Loan-to-deposit ratio screen.
branch that is a Federal branch for a
A through D of this part) and
(a) Application o f screen. Beginning
period of at least one year.
interpretations of those regulations.
no earlier than one year after a bank
(2) This subpart describes the
§25.65 Sanctions.
establishes or acquires a covered
requirements imposed under 12 U.S.C.
interstate branch, the OCC will consider
(a) In general. If the OCC determines
1835a, which prohibits a bank from
whether the bank's covered interstate
that a bank is not reasonably helping to
using any authority to engage in
meet the credit needs of the
branch loan-to-deposit ratio is less than
interstate branching pursuant to the
50 percent of the relevant host state
communities served by the bank in the
Interstate Act, or any amendment made
loan-to-deposit ratio.
host state, and that the bank’s covered
by the Interstate Act to any other
(b) Results o f screen. (1) If the OCC
interstate branch loan-to-deposit ratio is
provision of law, primarily for the
determines that the bank’s covered
less than 50 percent of the host state
purpose of deposit production.
interstate branch loan-to-deposit ratio is loan-to-deposit ratio, the OCC:
§25.62 Definitions.
(1) May order that a bank’s covered
50 percent or more of the host state
For purposes of this subpart, the
interstate branch or branches be closed
loan-to-deposit ratio, no further
following definitions apply:
consideration under this subpart is
unless the bank provides reasonable
(a) Bank means, unless the context
assurances to the satisfaction of the OCC
required.
indicates otherwise:
(2) If the OCC determines that the
that the bank has an acceptable plan
(1) A national bank; and
bank’s covered interstate branch loan-to- under which the bank will reasonably
(2) A foreign bank as that term is
deposit ratio is less than 50 percent of
help to meet the credit needs of the
defined in 12 U.S.C. 3101(7) and 12 CFR the host state loan-to-deposit ratio, or if communities served by the bank in the
28.11(j).
reasonably available data are
host state; and
(b) Covered interstate branch means
(2) Will not permit the bank to open
insufficient to calculate the bank’s
any branch of a national bank and any
a new interstate branch in the host state
covered interstate branch loan-toFederal branch of a foreign bank, that:
that would be considered to be a
deposit ratio, the OCC will make a
(1) Is established or acquired outside credit needs determination for the bank
covered interstate branch under
the bank’s home state under the
§ 25.62(b) unless the bank provides
as provided in § 25.64.
PART 25— COMMUNITY
REINVESTMENT ACT REGULATIONS

12736

Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Proposed Rules

reasonable assurances to the satisfaction
of the OCC that the bank will reasonably
help to meet the credit needs of the
community that the new interstate
branch will serve.
(b) Notice prior to closure o f covered
interstate branches. Before exercising
the OCC’s authority to order the bank to
close a covered interstate branch or
branches, the OCC will issue to the bank
notice of the OCC’s intent to order the
closure and will schedule a hearing
within 60 days of issuing the notice.
(c) Hearing. A hearing scheduled
under paragraph (b) of this section will
be conducted under the provisions of 12
U.S.C. 1818(h) and 12 CFR part 19.
Dated: March 1 1 ,1 9 9 7 .
Eugene A. Ludwig,
C om ptroller o f the Currency.

Federal Reserve System
12 CFR CHAPTER II

Authority and Issuance

For the reasons set forth in the joint
preamble, the Board of Governors of the
Federal Reserve System proposes to
amend parts 208 and 211 of chapter II
of title 12 of the Code of Federal
Regulations as follows:
PART 208— MEMBERSHIP OF STATE
BANKING INSTITUTIONS IN THE
FEDERAL RESERVE SYSTEM
(REGULATION H)

1. The authority citation for part 208
is revised to read as follows:
Authority: 12 U.S.C. 24, 248(a), 248(c),
321—
338a, 371d, 461, 481^186, 601, 611,
1814, 1820(d)(9), 1823(j), 1828(o), 18310,
1 8 3 1 p -l, 1835a, 3105, 3310, 3331 -3 3 5 1 , and
3906-3909; 15 U.S.C. 78b, 781(b), 781(g),
781(i), 78o-4(c)(5), 78q, 78q -l, and 78w; 31
U.S.C. 5318.

2. A new § 208.28 is added to subpart
A to read as follows:
§ 208.28 Prohibition against use of
interstate branches primarily for deposit
production.

(a) Purpose and scope—(1) Purpose.
The purpose of this section is to
implement section 109 (12 U.S.C.
1835a) of the Riegle-Neal Interstate
Banking and Branching Efficiency Act
of 1994 (Pub. L. 103-328, 108 Stat.
2338) (Interstate Act).
(2) Scope, (i) This section applies to
any State member bank that has
operated a covered interstate branch for
a period of at least one year, and any
foreign bank that has operated a covered
interstate branch licensed by a State for
a period of at least one year.
(ii) This section describes the
requirements imposed under 12 U.S.C.
1835a, which prohibits a bank from

using any authority to engage in
interstate branching pursuant to the
Interstate Act, or any amendment made
by the Interstate Act to any other
provision of law, primarily for the
purpose of deposit production.
(b) Definitions. For purposes of this
section, the following definitions apply:
(1) Bank means, unless the context
indicates otherwise:
(1) A State member bank as that term
is defined in 12 U.S.C. 1813(d)(2); and
(ii) A foreign bank as that term is
defined in 12 U.S.C. 3101 (7) and 12
CFR 211.21.
(2) Covered interstate branch means
any branch of a State member bank and
any branch of a foreign bank licensed by
a State, that:
(i) Is established or acquired outside
the bank’s home state under the
interstate branching authority granted
by the Interstate Act, or any amendment
made by the Interstate Act to any other
provision of law; or
(ii) Could not have been established
or acquired outside of the bank’s home
state but for the establishment or
acquisition of a branch described in
paragraph (b)(2)(i) of this section.
(3) Home state means:
(i) With respect to a state bank, the
state that chartered the bank;
(ii) With respect to a national bank,
the state in which the main office of the
bank is located; and
(iii) With respect to a foreign bank,
the home state of the foreign bank as
determined in accordance with 12
U.S.C. 3103(c) and 12 CFR 211.22.
(4) Host state means a state in which
a bank establishes or acquires a covered
interstate branch.
(5) Host state loan-to-deposit ratio
means, with respect to a particular host
state, the ratio of total loans in the host
state relative to total deposits from the
host state for all banks (including all
institutions covered under the
definition of “bank” in 12 U.S.C.
1813(a)(1)) that have that state as their
home state, as updated periodically and
made available to the public.
(6) Covered interstate branch loan-todeposit ratio means the ratio of a bank’s
loans to its deposits in a state in which
the bank has a covered interstate
branch, as determined by the Board.
(7) State means state as that term is
defined in 12 U.S.C. 1813(a)(3).
(c) Loan-to-deposit ratio screen—(1)
Application o f screen. Beginning no
earlier than one year after a bank
establishes or acquires a covered
interstate branch, the Board will
consider whether the bank’s covered
interstate branch loan-to-deposit ratio is
less than 50 percent of the relevant host
state loan-to-deposit ratio.

(2) Results o f screen, (i) If the Board
determines that the bank’s covered
interstate branch loan-to-deposit ratio is
50 percent or more of the host state
loan-to-deposit ratio, no further
consideration under this section is
required.
(ii) If the Board determines that the
bank’s covered interstate branch loan-todeposit ratio is less than 50 percent of
the host state loan-to-deposit ratio, or if
reasonably available data are
insufficient to calculate the bank’s
covered interstate branch loan-todeposit ratio, the Board will make a
credit needs determination for the bank
as provided in paragraph (d) of this
section.
(d) Credit needs determination—(1) In
general. The Board will review the loan
portfolio of the bank and determine
whether the bank is reasonably helping
to meet the credit needs of the
communities served by the bank in the
host state.
(2) Guidelines. The Board will use the
following considerations as guidelines
when making the determination
pursuant to paragraph (a) of this section:
(i) Whether covered interstate
branches were formerly part of a failed
or failing depository institution;
(ii) Whether covered interstate
branches were acquired under
circumstances where there was a low
loan-to-deposit ratio because of the
nature of the acquired institution’s
business or loan portfolio;
(iii) Whether covered interstate
branches have a high concentration of
commercial or credit card lending, trust
services, or other specialized activities,
including the extent to which the
covered interstate branches accept
deposits in the host state;
(iv) The Community Reinvestment
Act (CRA) ratings received by the bank,
if any, under 12 U.S.C. 2901 et seq. and,
if the credit needs determination is not
made concurrently with a CRA
evaluation, available information that
would indicate an improvement or
weakening in the bank’s CRA
performance since its most recent CRA
evaluation;
(v) Economic conditions, including
the level of loan demand, within the
communities served by the covered
interstate branches;
(vi) The safe and sound operation and
condition of the bank; and
(vii) The Board’s Regulation BB—
Community Reinvestment (12 CFR part
228) and interpretations of that
regulation.
(e) Sanctions—(1) In general. If the
Board determines that a bank is not
reasonably helping to meet the credit
needs of the communities served by the

Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Proposed Rules
By order of the Board o f Governors o f the
bank in the host state, and that the
bank’s covered interstate branch loan-to- Federal Reserve System, March 1 1 ,1 9 9 7 .
Jennifer J. Johnson,
deposit ratio is less than 50 percent of
D e p u ty Secretary o f the Board.
the host state loan-to-deposit ratio, the
Board:
Federal Deposit Insurance Corporation
(1) May order that a bank’s covered
12 CFR CHAPTER III
interstate branch or branches be closed
Authority and Issuance
unless the bank provides reasonable
assurances to the satisfaction of the
For the reasons set forth in the joint
Board that the bank has an acceptable
preamble, the Board of Directors of the
plan under which the bank will
Federal Deposit Insurance Corporation
reasonably help to meet the credit needs proposes to add part 369 to chapter III
of title 12 of the Code of Federal
of the communities served by the bank
Regulations to read as follows:
in the host state; and
(ii) Will not permit the bank to open PART 369— PROHIBITION AGAINST
a new interstate branch in the host state USE OF INTERSTATE BRANCHES
that would be considered to be a
PRIMARILY FOR DEPOSIT
covered interstate branch under
PRODUCTION
paragraph (b)(2) of this section unless
the bank provides reasonable assurances Sec.
369.1 Purpose and scope.
to the satisfaction of the Board that the
369.2 Definitions.
bank will reasonably help to meet the
369.3 Loan-to-deposit ratio screen.
credit needs of the community that the
369.4 Credit needs determination.
369.5 Sanctions.
new interstate branch will serve.
Authority: 12 U.S.C. 1819 (Tenth) and
(2) Notice prior to closure o f covered
1835a.
interstate branches. Before exercising
the Board’s authority to order the bank
§ 369.1 Purpose and scope.
to close a covered interstate branch or
(a) Purpose. The purpose of this part
branches, the Board will issue to the
is to implement section 109 (12 U.S.C.
bank notice of the Board’s intent to
1835a) of the Riegle-Neal Interstate
order the closure and will schedule a
Banking and Branching Efficiency Act
of 1994 (Pub. L. 103-328, 108 Stat.
hearing within 60 days of issuing the
2338) (Interstate Act).
notice.
(b) Scope. (1) This part applies to any
(3) Hearing. A hearing scheduled
State nonmember bank that has
under paragraph (e)(2) of this section
operated a covered interstate branch for
will be conducted under the provisions
a period of at least one year.
of 12 U.S.C. 1818(h) and 12 CFR part
(2) This part describes the
263.
requirements imposed under 12 U.S.C.
1835a, which prohibits a bank from
PART 211—INTERNATIONAL
using any authority to engage in
BANKING OPERATIONS
interstate branching pursuant to the
(REGULATION K)
Interstate Act, or any amendment made
by the Interstate Act to any other
1. The authority citation for part 211
provision of law, primarily for the
is revised to read as follows:
purpose of deposit production.
Authority: 12 U.S.C. 221 et seq., 1818,
1835a, 1841 et seq., 3101 e t seq., and 3901
e t seq.

2. In § 211.22, a new paragraph (d) is
added to read as follows:
§ 211.22 Interstate banking operations of
foreign banking organizations.
*

*

*

*

*

(d) Prohibition against interstate
deposit production offices. A covered
interstate branch of a foreign bank may
not be used as a deposit production
office in accordance with the provisions
in § 208.28 of the Board’s Regulation H
(12 CFR 208.28).

§369.2

Definitions.

For purposes of this part, the
following definitions apply:
(a) Bank means, unless the context
indicates otherwise, a State nonmember
bank.
(b) Covered interstate branch means
any branch of a State nonmember bank,
that:
(1) Is established or acquired outside
the bank’s home state under the
interstate branching authority granted
by the Interstate Act, or any amendment
made by the Interstate Act to any other
provision of law; or
(2) Could not have been established or
acquired outside of the bank’s home
state but for the establishment or
acquisition of a branch described in
paragraph (b)(1) of this section.

12737

(c) Covered interstate branch loan-todeposit ratio means the ratio of a bank’s
loans to its deposits in a state in which
the bank has a covered interstate
branch, as determined by the FDIC.
(d) Home state means:
(1) With respect to a state bank, the
state that chartered the bank;
(2) With respect to a national bank,
the state in which the main office of the
bank is located; and
(3) With respect to a foreign bank, the
home state of the foreign bank as
determined in accordance with 12
U.S.C. 3103(c).
(e) Host state means a state in which
a bank establishes or acquires a covered
interstate branch.
(f) Host state loan-to-deposit ratio
means, with respect to a particular host
state, the ratio of total loans in the host
state relative to total deposits from the
host state for all banks (including all
institutions covered under the
definition of “bank” in 12 U.S.C.
1813(a)(1)) that have that state as their
home state, as updated periodically and
made available to the public.
(g) State means state as that term is
defined in 12 U.S.C. 1813(a)(3).
§369.3

Loan-to-deposit ratio screen.

(a) Application o f screen. Beginning
no earlier than one year after a bank
establishes or acquires a covered
interstate branch, the FDIC will consider
whether the bank’s covered interstate
branch loan-to-deposit ratio is less than
50 percent of the relevant host state
loan-to-deposit ratio.
(b) Results o f screen. (1) If the FDIC
determines that the bank’s covered
interstate branch loan-to-deposit ratio is
50 percent or more of the host state
loan-to-deposit ratio, no further
consideration under this part is
required.
(2) If the FDIC determines that the
bank’s covered interstate branch loan-todeposit ratio is less than 50 percent of
the host state loan-to-deposit ratio, or if
reasonably available data are
insufficient to calculate the bank’s
covered interstate branch loan-todeposit ratio, the FDIC will make a
credit needs determination for the bank
as provided in § 369.4.
§369.4

Credit needs determination.

(a) In general. The FDIC will review
the loan portfolio of the bank and
determine whether the bank is
reasonably helping to meet the credit
needs of the communities served by the
bank in the host state.
(b) Guidelines. The FDIC will use the
following considerations as guidelines
when making the determination
pursuant to paragraph (a) of this section:

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Federal Register / Vol. 62, No. 51 / Monday, March 17, 1997 / Proposed Rules

(1) Whether covered interstate
branches were formerly part of a failed
or failing depository institution;
(2) Whether covered interstate
branches were acquired under
circumstances where there was a low
loan-to-deposit ratio because of the
nature of the acquired institution’s
business or loan portfolio;
(3) Whether covered interstate
branches have a high concentration of
commercial or credit card lending, trust
services, or other specialized activities,
including the extent to which the
covered interstate branches accept
deposits in the host state;
(4) The Community Reinvestment Act
(CRA) ratings received by the bank, if
any, under 12 U.S.C. 2901 et seq. and,
if the credit needs determination is not
made concurrently with a CRA
evaluation, available information that
would indicate an improvement or
weakening in the bank’s CRA.
performance since its most recent CRA
evaluation;
(5) Economic conditions, including
the level of loan demand, within the

that would be considered to be a
covered interstate branch under
§ 369.2(b) unless the bank provides
reasonable assurances to the satisfaction
of the FDIC that the bank will
reasonably help to meet the credit needs
of the community that the new
interstate branch will serve.
(b) Notice prior to closure o f covered
§369.5 Sanctions.
interstate branches. Before exercising
(a) In general. If the FDIC determines the FDIC’s authority to order the bank
that a bank is not reasonably helping to
to close a covered interstate branch or
meet the credit needs of the
branches, the FDIC will issue to the
communities served by the bank in the
bank notice of the FDIC’s intent to order
host state, and that the bank’s covered
the closure and will schedule a hearing
interstate branch loan-to-deposit ratio is within 60 days of issuing the notice.
less than 50 percent of the host state
(c) Hearing. A hearing scheduled
loan-to-deposit ratio, the FDIC:
under paragraph (b) of this section will
(1) May order that a bank’s covered
be conducted under the provisions of 12
interstate branch or branches be closed
U.S.C. 1818(h) and 12 CFR part 308.
unless the bank provides reasonable
By order of the Board o f Directors.
assurances to the satisfaction of the
Dated at W ashington, D.C., this 11th day of
FDIC that the bank has an acceptable
March, 1997.
plan under which the bank will
reasonably help to meet the credit needs Federal D eposit Insurance Corporation.
Robert E. Feldm an,
of the communities served by the bank
D e p u ty E xecu tive Secretary.
in the host state; and
[FR Doc. 9 7 -6 5 9 9 Filed 3 -1 4 -9 7 ; 8:45 am]
(2) Will not permit the bank to open
a new interstate branch in the host state BILLING CODE 4 810 -33 -P , 6 210 -01 -P , 6 7 14 -01 -P

communities served by the covered
interstate branches;
(6) The safe and sound operation and
condition of the bank; and
(7) The FDIC’s Community
Reinvestment Act Regulations (12 CFR
Part 345) and interpretations of those
regulations.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102