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Federal Reserve Bank
of

DALLAS

ROBERT D. McTEER, JR.
DALLAS, TEXAS

P R E S ID E N T

75265-5906

A N D C H IE F E X E C U T IV E O F F IC E R

September 26, 1997
Notice 97-86
TO: The Chief Executive Officer of 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 of Governors of the Federal Reserve System, along with the Office of the
Comptroller of the Currency and the Federal Deposit Insurance Corporation, has issued a rule
that adopts uniform regulations to implement section 109 of the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (Interstate Act).
As required by section 109, the rule prohibits any bank from establishing or acquiring
a branch or branches outside its home state under the Interstate Act primarily for deposit produc­
tion. In addition, the rule provides guidelines for determining whether such bank is reasonably
helping to meet the credit needs of the communities served by the interstate branches. The rule
becomes effective October 10, 1997.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 47728-38, Vol. 62, No. 175 of the
Federal Register dated September 10, 1997, is attached.
MORE INFORMATION
For more information, please contact Dean Pankonien at (214) 922-6154. For addi­
tional copies of this Bank’s notice, please contact the Public Affairs Department at (214)
922-5254.
Sincerely yours,

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)

4 7728 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12CFR Part 25
[Docket No. 9 7 -1 6 ]
RIN 1557-A B 50

FEDERAL RESERVE SYSTEM
12CFR Parts 208 and 211
[Regulations H and K; Docket No. R -0 96 2 ]

FEDERAL DEPOSIT INSURANCE
CORPORATION
12CFR Part 369
RIN 3 0 6 4-A B 9 7

Prohibition Against use of Interstate
Branches Primarily for Deposit
Production

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 final rule.

AGENCIES:

The OCC, Board, and FDIC
(collectively, agencies) are adopting
uniform regulations to im plem ent
section 109 (section 109) of the RiegleNeal Interstate Banking and Branching
Efficiency Act of 1994 (Interstate Act).
The final rule reflects comments
received on the proposal and further
internal consideration by the agencies.
As required by section 109, the final
rule prohibits any bank from
establishing or acquiring a branch or
branches outside of its home state under
the Interstate Act prim arily for the
purpose of deposit production, and
provides guidelines for determining
w hether such bank is reasonably
helping to meet the credit needs of the
com m unities served by these branches.
EFFECTIVE DATE: October 10, 1997.
SUMMARY:

FOR FURTHER INFORMATION CONTACT:

OCC: Neil M. Robinson, Senior
Attorney, Comm unity & Consumer Law
Division (202) 874-5750; Kevin L. Lee,
Senior Attorney, Enforcement and
Compliance Division (202) 874-4800;
A ndrew T. Gutierrez, Attorney,
Legislative and Regulatory Activities
Division (202) 874-5090; or w ith respect
to Federal branches of foreign banks,
M aureen Cooney, Senior Attorney,
International Activities Division (202)
874-0680.
Board: Lawranne Stewart, Senior
Attorney, Legal Division (202) 4 5 2 -

3513; Robert L. McKague, Attorney,
Legal Division (202) 452-2810; Shawn
McNulty, A ssistant Director, Division of
Consumer and Community Affairs (202)
452-3946; or w ith respect to foreign
banks, Kathleen M. O ’Day, Associate
General Counsel, Legal Division (202)
452-3786.
FDIC: Louise Kotoshirodo, Review
Examiner, Division of Consumer Affairs
(202) 942-3599; Doris L. Marsh,
Examination Specialist, Division of
Supervision (202) 898-8905; or Gladys
Cruz Gallagher, Counsel, Legal Division
(202) 898-3833.
SUPPLEMENTARY INFORMATION:

Background
The Interstate A c t1 provides
expanded authority for a domestic or
foreign bank to establish or acquire a
branch in a state other than the bank’s
home state (host state). Section 109
requires the agencies to prescribe
uniform rules that prohibit the use of
the authority under the Interstate Act to
engage in interstate branching primarily
for the purpose of deposit production.2
The agencies m ust also provide
guidelines to ensure that banks that
operate such branches are reasonably
helping to m eet the credit needs of the
com m unities served by the branches.
Congress enacted section 109 to ensure
th at the new interstate branching
authority provided by the Interstate Act
w ould not result in the taking of
deposits from a com m unity w ithout
banks reasonably helping to m eet the
credit needs of that community. See
H.R. Conf. Rep. No. 103-651, at 62
(1994).
Overview of Proposed Rule and
Comments
The agencies published a joint notice
of proposed rulemaking on March 17,
1997 (62 FR 12730). The proposed rule
applied to any bank that established or
acquired, directly or indirectly, a branch
u nd er the authority of the Interstate Act
or am endm ents to any other provision
of law m ade by the Interstate Act. These
branches were referred to as “ covered
interstate branches.” The proposed rule
provided that, beginning no earlier than
one year after a bank established or
acquired a covered interstate branch, the
appropriate agency w ould determine
w hether the bank satisfied a “loan-todeposit ratio screen” based on
reasonably available data.
The loan-to-deposit ratio screen
com pared the bank’s loan-to-deposit
ratio w ithin the state w here the bank’s
covered interstate branches were located
1 Pub. L. No. 103-328, 108 Stat. 2338.
212 U.S.C. 1835a.

(the bank’s statewide loan-to-deposit
ratio )3 w ith the loan-to-deposit ratio of
banks w hose home state was that state
(host state loan-to-deposit ratio). If the
loan-to-deposit ratio screen indicated
that the bank’s statewide loan-to-deposit
ratio was at least 50 percent of the host
state loan-to-deposit ratio, no further
analysis w ould be required. If, however,
the appropriate agency determ ined that
the bank’s statewide loan-to-deposit
ratio was less than 50 percent of the
host state loan-to-deposit ratio, or
determ ined that reasonably available
data did not exist that perm itted the
agency to determ ine the bank’s
statewide loan-to-deposit ratio, the
agency w ould perform a “credit needs
determ ination.”
U nder the credit needs determ ination,
the appropriate agency w ould review
the loan portfolio of the bank and
determ ine w hether the bank was
reasonably helping to m eet the credit
needs of the com m unities served by the
bank in the host state. Consistent w ith
section 109, the agencies would
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) w hether the
covered interstate branches were
acquired u nd er circumstances where
there was a low loan-to-deposit ratio
because of the nature of the acquired
institution’s business; (3) w hether 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);4 (5) economic conditions,
including the level of loan demand,
w ithin the com m unities served by the
covered interstate branches; and (6) the
safe and sound operation and condition
of the bank.
A bank that failed the loan-to-deposit
ratio screen and that received a
determ ination that it was not reasonably
helping to meet the credit needs of the
com m unities served by the b ank’s
interstate branches could be subject to
section 109’s sanctions after a hearing
under section 8(h) of the Federal
Deposit Insurance Act.5
3 The proposed rule designated this ratio as the
“covered interstate branch loan-to-deposit ratio.”
T he agencies changed the term because some
com m enters m istakenly interpreted the proposed
rule as requiring each covered interstate branch to
be tested u n d er section 109’s loan-to-deposit ratio
screen. Section 109 requires consideration of a
bank’s statew ide lending and deposit taking as
determ ined by the appropriate agency.
4 12 U.S.C. 2901 etseq.
512 U.S.C. 1818(h).

Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Rules and Regulations47729
The proposed rule also recognized
that data necessary to perform the
calculations required by the loan-todeposit ratio screen may not be
reasonably available w ithout imposing
additional regulatory burdens on banks.
As discussed in the proposal, data that
are currently reported have lim ited use
in showing the geographic location of
depositors and borrowers that is
necessary for calculating the host state
loan-to-deposit ratio. In addition, data
storage practices vary w idely from bank
to bank, thereby making it difficult to
determ ine how many m ultistate banks
w ould have reasonably available data
relevant to calculating the bank’s
statewide loan-to-deposit ratio in each
state in w hich the bank has branches.
The agencies requested com m ent on the
data availability issues raised by section
109, including possible sources of
relevant data that w ould be reasonably
available to the agencies and
appropriate m ethods of calculating the
ratios. The agencies also requested
comment on the proposed ru le’s
approach of conducting a credit needs
determ ination before applying the loanto-deposit ratio screen, if data sufficient
to calculate the bank’s statewide loanto-deposit ratio were not reasonably
available.
Collectively, the agencies received 54
comments on the proposal. Comments
were received from bank holding
com panies (11), individual banks (17),
banking industry representatives (8),
state bank commissioners and an
association of state bank commissioners
(7), consumer and com m unity
representatives (9), a nonbanking
company (1), and an individual (1).
Commenters supporting the proposal
noted that the agencies were lim ited by
section 109’s prohibition against
imposing new burdens on banks.
Commenters opposing the proposal
generally disagreed w ith the statutory
scheme rather than its proposed
implementation. Other commenters
suggested modifications to the proposal.
In developing the final rule, the
agencies have carefully considered all
comments in light of the language and
legislative intent of section 109. For the
reasons discussed in detail below, the
agencies have adopted the rule
substantially as proposed.
Analysis of Comments and Final Rule
Interstate Branches Covered
Several commenters raised a
threshold issue based on a statement in
the proposed rule concerning its
coverage. The proposed rule stated that
domestic banks may have branches
located outside a bank’s home state that

are not w ithin the scope of section 109
because they were not established or
acquired pursuant to authority in the
Interstate Act.6 Several commenters
disputed this statement, especially as
applied to any bank not grandfathered
under the M cFadden Act of 1927.7
These commenters cited, in particular,
pending litigation challenging the
legality of branches established under
the m ain office relocation provision in
the National Bank Act.8 Commenters
also stated that “thousands” of branches
retained in transactions involving the
relocation of a national bank’s main
office across state lines before June 1,
1997 (retained branches), may be among
the bank branches deem ed to be outside
the coverage of section 109.
The coverage of the final rule
coincides w ith the coverage of the
Interstate Act thereby ensuring that the
agencies w ill apply section 109
consistent w ith the Interstate Act.
Consistent w ith section 109, and as
stated in the proposed rule, the final
rule applies to any branch (1)
established or acquired outside a bank’s
home state pursuant to the Interstate Act
or any am endm ent made by the
Interstate Act to any other provision of
law, or (2) that could not have been
established or acquired outside a bank’s
home state but for the previous
establishm ent or acquisition of a branch
established pursuant to the Interstate
Act.
The issue of the applicability of
section 109 to branches in connection
w ith a relocation under the National
Bank Act is an issue w ithin the
jurisdiction of the OCC. The OCC notes
that a Federal court of appeals recently
issued an opinion in one pending case
involving relocations under the National
Bank Act.9 The OCC believes that the
commenters significantly overestimated
the potential num ber of affected
branches. The OCC estimates that by
mid-1998, as banks establish or acquire
branches pursuant to the Interstate Act,
at most only a few h u ndred retained
branches, ow ned by a small num ber of
com m unity or mid-sized banks, w ould
rem ain and expects that the num ber of
these retained branches w ill continue to
decrease as the banks engage in

transactions pursuant to the Interstate
Act.
Data A vailability
Commenters described in detail the
shortcomings of reported data for
calculating the host state loan-to-deposit
ratio.10 Other commenters described the
significant limitations on currently
available data for providing the
geographic location of a depositor or
borrower that is necessary to calculate
the bank’s statewide loan-to-deposit
ratio. A num ber of commenters also
noted that sampling loan files to
calculate this ratio could significantly
increase regulatory burden by extending
the duration of an exam ination and by
requiring a bank to devote additional
resources to the examination process.11
Some commenters recom mended,
however, that the agencies require banks
to report publicly additional data on the
geographic locations of their loans and
deposits, and requested that the
agencies obtain sufficient data to
calculate the bank’s statewide loan-todeposit ratio in all cases regardless of
the regulatory burdens imposed.
The language of section 109 and its
legislative history make clear that the
agencies are to adm inister section 109
w ithout imposing additional regulatory
burdens on banks. Section 109 directs
the agencies to calculate the bank’s
statewide loan-to-deposit ratio from
reasonably available information,
including an agency’s sampling of the
bank’s loan files during an examination,
or other available data. The agencies
also are required to calculate the host
state loan-to-deposit ratio as
determinable from relevant sources. The
House Conference Report states that
“ [t]he Conferees do not intend that
section 109 create any additional
regulatory or paperwork burdens for any
institution.” H.R. Conf. Rep. No. 103651, at 62 (1994). Therefore, consistent
w ith the language and intent of section
109, the final rule does not impose
additional data reporting requirem ents

10The agencies have also reviewed a report by the
Comptroller General of the U nited States entitled
“Bank Data: Material Loss of Oversight Information
From Interstate Banking Is U nlikely” (GAO/GGD/
97049) (March 26, 1997).
11 The com m enters also confirmed the agencies’
supervisory experience th at sam pling at a particular
branch w ould not always produce reliable data
because of w ide variations in data collection
6 As noted in the proposed rule, lim ited branches
practices. For example, a bank m ay book loans or
(i.e., offices that only accept internationally-related
deposits at locations outside th e state where the
deposits perm issible for an Edge A ct corporation to
borrowers or depositors are located. Many domestic
accept) and agencies operated by foreign banks
and foreign institutions often consolidate
outside their hom e state are not subject to section
commercial loans and deposits at a bank’s m ain
109.
office, w hile mortgage lending m ay be booked at a
7 12 U.S.C. 36.
mortgage lending subsidiary. Although the loans
8 12 U.S.C. 30.
m ay have been m ade through a ban k ’s covered
9 See Ghiglieri v. Sun World N a t’l A ss’n, Nos. 96 - interstate branch, they m ight not be booked at that
branch.
50847 and 96-50948 (5th Cir. July 22, 1997).

47730 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Rules and Regulations
nor does it generally require a bank to
produce, or assist in producing, relevant
data.
W hen data sufficient to calculate a
bank’s statewide loan-to-deposit ratio
are not reasonably available, the
agencies w ill conduct a credit needs
determ ination as discussed below. The
agencies believe that this approach
accomplishes the purpose of section 109
w ithout imposing additional burdens on
the bank.
Two-Step A nalysis
Commenters generally supported the
approach of the appropriate agency
conducting a credit needs determ ination
if reasonably available data are
insufficient to calculate the bank’s
statewide loan-to-deposit ratio. Some
commenters, however, suggested that a
bank should be allowed to request a
credit needs determ ination before the
application of the loan-to-deposit ratio
screen in a section 109 review. Other
commenters stated that the credit needs
determ ination should be abandoned in
favor of testing only w ith the loan-todeposit ratio screen.
After carefully considering the
comments received on this point, the
agencies have concluded that the
Interstate Act requires the agencies to
conduct a loan-to-deposit ratio screen—
or to determ ine that sufficient data are
not reasonably available—before making
a credit needs determination.
Section 109 provides a two-step
analysis to confirm a bank’s compliance
w ith its prohibition against deposit
production offices. The first step
attem pts to measure compliance w ith
the prescribed loan-to-deposit ratio
screen, and the agencies w ill take into
account all reasonably available data
relevant to calculating the bank’s
statewide loan-to-deposit ratio on a
case-by-case basis in order to determine
w hether that ratio can be calculated
from such data.
Relevant data are data that, for
example, geocode loans or that can be
used to sort borrowers by zip codes. The
agencies also w ill consider data that are
reasonably determinable from available
information, w hich w ould include the
agency’s sampling of the bank’s loan
files during an examination, or data that
w ould be otherwise available from the
bank, such as data currently required to
be reported by the bank. In determining
w hether to sample a bank’s loan files for
the purposes of section 109 during an
examination, the agencies w ill consider
the regulatory burden im posed w ithin
the context of the examination. For
example, an undue regulatory burden
could result if a bank were required to
expend resources that materially

exceeded the resources required to
produce data for sampling for other
exam ination purposes. Similarly,
sampling for the purpose of section 109
that w ould require a substantial
extension of the scope or duration of the
examination could also produce an
un due regulatory burden on the bank. In
such cases, the language and legislative
intent of section 109 support proceeding
to the second step in the two-step
analysis.
If the appropriate agency determines
that data relevant to calculating the
bank’s statewide loan-to-deposit ratio
are not reasonably available w ithout
imposing an u ndu e regulatory burden,
or if the bank fails the loan-to-deposit
ratio screen based on reasonably
available data, in the second step the
appropriate agency w ill look at the
bank’s activities through a credit needs
determ ination. A credit needs
determ ination therefore w ill be m ade in
all cases in w hich the appropriate
agency is unable to readily verify
compliance w ith the section 109 loanto-deposit ratio screen. Banks may
provide the agencies w ith any relevant
information, including loan data, if a
credit needs determ ination is required.
If the appropriate agency has not
determ ined the bank’s statewide loanto-deposit ratio and the bank
subsequently receives an adverse credit
needs determ ination, the agency will
then apply the loan-to-deposit ratio
screen. Applying the loan-to-deposit
screen at this stage in the process is
consistent w ith the agencies’ statutory
duty to determ ine a bank’s compliance
w ith section 109 and to seek sanctions
against a bank that fails to comply, as
appropriate. Since a bank m ust fail both
the loan-to-deposit screen and the credit
needs determ ination in order to be out
of compliance w ith section 109, the
agencies have an obligation to apply the
loan-to-deposit screen before seeking
sanctions. Obtaining sufficient data to
calculate the bank’s statewide loan-todeposit ratio may require the
appropriate agency to expand the scope
and duration of its examination and
may require the bank to assist the
appropriate agency in producing data
that may not be reasonably available.
The agencies conclude that their
statutory responsibility to ensure
compliance w ith the statute after an
adverse credit needs determ ination
m ust outweigh consideration of
regulatory burden that may be im posed
on a bank in order to carry out the
legislative purpose of section 109.

Section 109 Loan-to-Deposit Ratios
A. H ost State Loan-to-Deposit Ratio
Relevant Data
The agencies w ill use the annual
Summary of Deposits (prepared as of
June 30) as the m ost reasonably
available source of reported data on
deposits. The agencies also w ill use
quarterly Consolidated Reports of
Condition and Income (Call Reports),
w hich provide loan data for banks, as
the m ost readily available source of
reported data on loans.
The agencies recognize that Summary
of Deposits and Call Report data do not
provide precise information on the
geographic location of depositors and
borrowers for all the reasons detailed in
the proposed rule and the comments.
However, these data are the most useful
data that are reasonably available at this
time.
M ethod of Calculating
Some commenters suggested
alternative ways of calculating the host
state loan-to-deposit ratio. One
commenter suggested using the
unw eighted average loan-to-deposit
ra tio 12 for all of the home state banks in
the host state. Another commenter
recom m ended using the average daily
balance for loans instead of the actual
am ount of loans held at the end of the
reporting period. One commenter
suggested using third-quarter data for
states w ith large rural and agricultural
areas to capture the highest loan-todeposit ratio. The agencies have also
considered using peer group ratios
based on the Uniform Bank Performance
Reports, and separating the peer groups
into quintiles so that the banks in the
quintiles w ith unusually high or low
loan-to-deposit ratios could be
eliminated.
The agencies have determ ined to
adopt the methodology discussed below
w hich uses a weighted average loan-todeposit ratio and second-quarter loan
data generally. An unw eighted average
loan-to-deposit ratio for home state
banks in the host state w ould fail to
account for the greater lending and
deposit-taking activities of the larger
banks. In addition, third-quarter data for
loans w ould not be appropriate because
the Summary of Deposits data are only
as of June 30, and loan and deposit data
should be as of the same date. Moreover,
available data are insufficient to
12 The unw eighted average loan-to-deposit ratio is
calculated by adding the individual banks’ loan-todeposit ratios and dividing the result by the num ber
of banks. A weighted average loan-to-deposit ratio
is calculated by separately sum m ing loans and
deposits for all of the banks and then dividing the
sum of loans by the sum of deposits.

Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Rules and Regulations 47731
calculate the average daily balance for
all loan categories reported in the Call
Reports, and there is no indication that
the purpose of the section 109 screen
was to capture the highest loan-todeposit ratio of host state banks. Finally,
methodologies based on peer groups
require a sufficient num ber of
institutions in each peer group, and it is
likely that some states w ould not have
sufficiently large peer groups,
particularly for larger banks, to make a
methodology using peer groups and
quintiles feasible.
Several commenters raised concerns
that data for specialized banks, w hich
do not engage in traditional deposit
taking or lending, w ould distort the host
state loan-to-deposit ratio. As noted in
the proposed rule, lim ited purpose
banks, such as credit card banks, and
wholesale banks could have very large
loan portfolios, but few, if any, deposits.
The agencies w ill therefore exclude data
from banks designated as lim ited
purpose or wholesale banks under the
CRA regulations of the appropriate
agency in calculating the loan-to-deposit
ratio for the host state.13
In addition, certain lending activities
of banks w ith foreign branches could
distort the ratio. The agencies w ill use
a measure of domestic loans that
excludes loans to non-U.S. addressees
and loans in foreign offices to the extent
that these adjustm ents can be m ade to
data in the Call Reports. A measure of
domestic deposits from the Summ ary of
Deposits does not include foreign
deposits so that, to the m axim um extent
possible, domestic loans w ill be divided
by domestic deposits.

banks is more difficult. N either the Call
Report nor any other source of loan data
contain data on a branch-by-branch or
state-by-state basis. Thus, unless a bank
m aintains loan data on a state-by-state
basis, there are no reasonably available
data to calculate a m ultistate bank’s
home state lending activities.
In the proposal, the agencies
suggested excluding m ultistate banks
that have more than 50 percent of their
branches outside their hom e state from
the host state loan-to-deposit ratio.
Recognizing the lim itations in this
approach, the agencies requested
com m ent on this approach and on any
approach that w ould more accurately
reflect a multistate bank’s home state
activities.
In response to the agencies’ request
for comment, one comm enter supported
the exclusion of large m ultistate banks
from the host state loan-to-deposit ratio
because larger banks can m aintain
higher than average loan-to-deposit
ratios by funding loans w ithout using
deposits. Another commenter suggested
using a bank’s deposits reported in its
home state and a proportionate am ount
of the bank’s loans based on the
percentage of its total deposits that are
reported in the bank’s home state. A
third commenter suggested that deposit
and loan proration be based on the
num ber of hom e state branches as a
percentage of the bank’s total num ber of
branches.
On further consideration of this issue,
the agencies have concluded that the
host state loan-to-deposit ratio could be
distorted substantially if m ultistate
banks w ith 50 percent or more of their
branches outside their home state are
Consideration of M ultistate Banks
excluded, or if large m ultistate banks are
As discussed in the proposal, banks
excluded altogether. As interstate
w ith branches outside their home state
branching becomes more prevalent,
(multistate banks), in light of the data
some host states could eventually be left
lim itations im posed by section 109,
w ith few, if any, eligible host state
pose particular problems for purposes of banks 14 to include in the ratio.
calculating host state loan-to-deposit
Moreover, including all loans and
ratios. Loan and deposit data from those deposits of any multistate bank in
banks could distort substantially the
calculating the host state loan-to-deposit
host state loan-to-deposit ratios, unless
ratio for its home state w ould give too
the data are adjusted to account for the
m uch weight to that bank’s lending and
banks’ out-of-state branches’ lending
deposit-taking activities, and excluding
and deposit-taking activities. Because
all its loans and deposits w ould give no
the Summary of Deposits contains data
w eight at all.
After carefully considering all
on a branch-by-branch basis, the
comments, and given the statutory
agencies can account for the depositlim itation on additional data collection,
taking activities of out-of-state branches
the agencies believe the best available
of m ultistate banks by using the
approach requires assuming that a
aggregate deposit-taking activities of a
m ultistate b ank’s lending and depositmultistate banks’ home state branches
taking activities in its hom e state
only.
Accounting for the lending activities
correspond to its total lending and
of out-of-state branches of multistate
deposit-taking activities (i.e., the
13 See 12 CFR 25.25 (OCC); 12 CFR 228.25
(Board); and 12 CFR 345.25 (FDIC).

14 Host state banks are banks in a host state that
have that state as their hom e state.

percentage of its total loans that are in ­
state is the same as the percentage of its
total deposits that are in-state). In
particular, the agencies w ill calculate
the percentage of a multistate bank’s
deposits that are attributable to in-state
branches (as determ ined from the
Summary of Deposits), and apply that
percentage to the bank’s total domestic
loans (as determ ined from the Call
Report) in order to determ ine a proxy
for the bank’s domestic loans
attributable to that state. The agencies
believe that this approach is preferable
to including or excluding all loans and
deposits of a m ultistate bank.
The agencies recognize that this
m ethod for calculating the host state
loan-to-deposit ratio makes certain
assum ptions that may not be universally
true. For example, intrastate banks do
not necessarily make loans only to in ­
state borrowers. In addition, there is not
necessarily a one-to-one correlation
betw een in-state deposits and in-state
loans for a multistate bank.
Nevertheless, the data lim itations
im posed by section 109 necessitate
these assumptions. The agencies w ill
adjust this m ethod as appropriate to
account for changes in reporting
requirem ents or additional sources of
relevant data. The agencies also w ill
continue to review ways to improve the
calculation of the host state loan-todeposit ratio. The agencies w ill make
each state’s host state loan-to-deposit
ratio, and any changes in the way the
ratio is calculated, publicly available.
B. A B a n k’s Statew ide Loan-to-Deposit
Ratio
Relevant Data
Several commenters suggested that a
“loan” under the final rule should be
defined more expansively than that term
is defined in the Call Reports and
should include, for example, loans
originated and sold, securitized loans,
investments in mortgage-backed
securities and m unicipal bonds secured
by loans, outstanding letters of credit,
and loans booked through a bank’s
affiliates. Since banks generally do not
report these data, or do not report them
in a format that w ould provide a
differentiation between in-state
quantities and out-of-state quantities,
the data could not be used in calculating
the host state loan-to-deposit ratios.
Using such data for a particular bank’s
statewide loan-to-deposit ratio, and not
for the corresponding host state loan-todeposit ratio, w ould distort the loan-todeposit ratio screen. Consequently, the
agencies w ill not consider these data in
applying the loan-to-deposit ratio
screen. However, the agencies may

4 7 7 3 2 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Rules and Regulations
consider such data as appropriate in
making a credit needs determination.
Credit Needs Determination
Consideration of CRA Rating
Some commenters m aintained that a
satisfactory or better CRA rating in a
host state should provide a “safe
harbor” from evaluation u nder section
109 in that state. Other commenters,
however, believed that little, if any,
reliance should be placed on CRA
ratings because these commenters
viewed CRA ratings as inflated and
often out-of-date. One commenter
suggested that a less than satisfactory
CRA rating should automatically
w arrant an adverse credit needs
determination.
The agencies believe that it is
consistent w ith the language and intent
of section 109 to carefully weigh the
CRA rating of the bank in making a
credit needs determ ination under the
factors enum erated in section 109.
Section 109 specifies the bank’s CRA
rating as a factor to be considered, and
m ost of the other factors listed in
section 109 are taken into account as
part of the performance context
evaluation pursuant to the agencies’
CRA regulations.15
Moreover, section 110 of the Interstate
Act (section 110)16 requires the
following separate w ritten evaluations
and CRA ratings of the institution’s CRA
performance (1) as a whole, (2) in each
state in w hich it m aintains a branch,
and (3) in any m ultistate m etropolitan
area in w hich it m aintains a branch in
two or more states. In addition, the
statewide w ritten evaluation of a
m ultistate bank m ust contain separate
discussions of the institu tion ’s
performance in any m etropolitan area in
the state in w hich it m aintains a branch,
as well as in the nonm etropolitan area
of the state if a branch is m aintained
there. Accordingly, inform ation from a
CRA performance evaluation is
particularly relevant in determining
compliance w ith section 109 because it
directly evaluates a bank’s performance
in helping to m eet the credit needs of
the com m unities it serves in a host state.
As discussed below, the agencies expect
to conduct the section 109 review in
15 The CRA regulations specify that the agencies
w ill evaluate a bank’s perform ance in the context
of a num ber of considerations, including the nature
of the b an k’s product offerings and business
strategy, the lending opportunities w ith in a bank’s
assessm ent area, and any constraints on the bank
such as the financial condition of the bank, the
economic climate (national, regional and local), and
safety and soundness limitations. See 12 CFR
25.21(b) (OCC); 12 CFR 228.21(b) (Board); and 12
CFR 345.21(b) (FDIC).
1612 U.S.C. 2906(b) and (d).

connection w ith an evaluation of the
bank’s CRA performance in the host
state u nder section 110, as the
appropriate agency deems necessary,
thereby ensuring that the section 109
review w ill be based on current
information.
In this light, the agencies expect that
a credit needs determ ination for a bank
w ith CRA performance ratings of
“satisfactory” or “outstanding” in the
host state (including any m ultistate
m etropolitan area) w ould be favorable.
The agencies also expect that a credit
needs determ ination for a bank w ith less
th an satisfactory ratings for CRA
performance in the host state (including
any m ultistate m etropolitan area) w ould
be adverse unless mitigated by the other
factors enum erated in section 109.
Commenters requested that a credit
needs determ ination only consider the
lending com ponent of a large bank’s
CRA rating, or that the lending
com ponent be given extra weight. The
CRA rating for a large retail bank
already weighs lending performance so
that a bank may not receive an overall
“ satisfactory” CRA performance rating
unless its lending performance
com ponent is rated at least
“satisfactory.” Accordingly, the
agencies are not adopting the suggested
change.
Other Factors
Commenters also discussed other
factors that section 109 requires the
agencies to consider in making a credit
needs determination. Some commenters
suggested that, in considering economic
conditions, the agencies should grant
m ultistate banks greater leeway to
anticipate economic trends in the host
state and, if these trends are adverse, to
reduce their efforts in helping to meet
com m unity credit needs. Another
com menter suggested eliminating all
factors that could be used to mitigate a
poor CRA performance record. There
also were requests for more guidance in
the regulation on how the statutory
factors w ould be considered in a credit
needs determination.
The final rule incorporates the
statutory factors as they are set forth in
section 109. The agencies intend to
apply these factors consistent w ith the
plain m eaning of the language used in
section 109, as discussed above. With
respect to institutions designated as
wholesale or lim ited purpose banks
u nd er the CRA regulations, the agencies
w ill consider the CRA performance for
these banks under the special CRA
performance test provided in the CRA
regulations and the banks’ specialized
operations.

Banks Not Subject to CRA
Some entities that could be subject to
section 109, including certain special
purpose banks and uninsured branches
of foreign banks,17 are not evaluated for
CRA performance by the agencies.
Several commenters m aintained that, in
making a credit needs determ ination for
such institutions, the agencies should
apply the same standards that are
applied to CRA-rated institutions. As
discussed in the proposed rule, neither
the language nor the legislative history
of section 109 supports applying the
CRA to these institutions. The agencies
intend to use the CRA regulations as
guidelines in making a credit needs
determ ination for these institutions. The
CRA regulations w ould provide only
guidance to assess w hether activities
identified by the institution help to
meet the com m unity’s credit needs, and
w ould not obligate the institution to
have a record of performance under the
CRA or require that the institution pass
any performance tests in the CRA
regulations.
The agencies also intend, as proposed,
to give substantial weight to the factor
relating to specialized activities in
making a credit needs determ ination for
institutions not evaluated u n der the
CRA. For example, most branches of
foreign banks derive substantially all
their deposits from wholesale deposit
markets, w hich are generally national or
international in scope.18 This approach
17A special purpose bank that does not perform
commercial or retail banking services by granting
credit to the public in the ordinary course of
business is not evaluated for CRA performance 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). In addition, the CRA does not apply to the
branch of a foreign bank unless the branch is
insured or results from an acquisition described in
section 5(a)(8) of the International Banking Act (12
U.S.C. 3103(a)(8)) (IBA, 12 U.S.C. 3101 et seq.). See
12 CFR 25.11(c)(2) (OCC); 12 CFR 228.11(c)(2)
(Board); and 12 CFR 345.11(c)(1) (FDIC).
18U.S. branches of foreign banks generally accept
only u ninsured wholesale deposits, and are not
established prim arily to gather deposits in their
host state. In 1991, the Federal Deposit Insurance
Corporation Im provem ent A ct 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 that were
already insured by the FDIC in 1991, or to the
extent the OCC or the FDIC determ ine that the
branch is not engaged in dom estic retail deposit
taking activities requiring deposit insurance
protection. 12 U.S.C. 3104. 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 (12 U.S.C.
3104, Historical and Statutory Notes). As a general
matter, interstate branches of foreign banks
established under the Interstate Act therefore
cannot take retail deposits or draw a significant
level of deposits from retail-oriented deposit
markets w here the branches are located.

Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Rules and Regulations47733
is consistent w ith section 109’s overall
purpose of preventing banks from using
the Interstate Act to establish branches
prim arily to gather deposits in their host
state w ithout reasonably helping to meet
the credit needs of the com munities
served by the bank in the host state.
Other Comments
Several commenters requested that
the public, including representatives of
com m unity organizations and state bank
commissioners, participate in a credit
needs determination. Information
provided to examiners through contacts
w ith com m unity representatives during
a CRA exam ination or through other
activities, and the bank’s public
comment file provide the agencies
substantial inform ation to assess the
views of com m unity organizations,
government officials, and other
interested persons. In addition, the
agencies encourage w ritten comments
from the public about a bank’s CRA
performance at any tim e and publicly
announce their CRA. examination
schedules. The agencies w ill carefully
review inform ation provided to
examiners from com m unity contacts or
through other activities, and the public
com m ent file in making a credit needs
determination.
State bank commissioners also
requested that the agencies consider
com pliance w ith state CRA laws in
making a credit needs determination.
The agencies w ill take into account state
CRA com pliance evaluations in a credit
needs determination, as appropriate.
Some commenters requested the
agencies to consider affiliate lending
activities in making a credit needs
determ ination w hile other commenters
cautioned against giving too m uch
consideration to affiliate lending
activities. The agencies’ CRA
regulations perm it a bank’s affiliate
lending to be considered as part of its
CRA performance evaluation. Affiliate
lending, therefore, w ould be relevant to
a section 109 review to the extent that
such lending is reflected in the bank’s
overall CRA performance rating.
Sanctions
A pplication of Loan-to-Deposit Ratio
Screen
Before a bank could be sanctioned
under section 109, the appropriate
agency w ould be required to
demonstrate that the bank failed to
comply w ith the section 109 loan-todeposit ratio screen and failed to
reasonably help in meeting the credit
needs of the bank’s com m unities in the
host state. Accordingly, the proposed
rule required the agencies to determine

a bank’s compliance w ith the loan-todeposit ratio screen. Some commenters
suggested th at the agencies could
im pose sanctions on a bank w ithout
verifying noncom pliance w ith the loanto-deposit ratio screen and other
commenters contended that requiring
such a verification w ould impose
significant regulatory burdens. As
previously discussed, the agencies have
concluded that the two-step com pliance
analysis in section 109 requires the
agencies to verify noncom pliance w ith
both steps before imposing sanctions,
and that the agencies’ responsibility to
ensure compliance w ith section 109
after an adverse credit needs
determ ination outweighs potential
regulatory burdens associated w ith such
a verification.
Consultation and Public Comment
If a bank fails both steps in the
analysis, section 109’s sanctions (1)
allow the appropriate agency to order
the closing of a covered interstate
branch in the host state unless the bank
provides reasonable assurances to the
satisfaction of the agency that it has an
acceptable plan that w ill reasonably
help to meet the credit needs of the
com m unities served by the bank, and (2)
prohibit the bank from opening a new
branch in the host state unless the bank
provides reasonable assurances to the
satisfaction of the agency that the bank
w ill reasonably m eet the credit needs of
the com m unity to be served by the new
branch.19
State banking commissioners
requested consultation before the
agencies ordered a branch closing.
Informal consultations w ith state
banking regulators may assist the
agencies in assessing the im pact of
branch closures, or a prohibition against
new branches, on a state bank’s ability
to comply w ith state CRA laws. Informal
consultations may also assist in
assessing the bank’s assurances to help
m eet credit needs in light of its record
w ith state banking regulators for
addressing supervisory concerns.
Accordingly, the agencies intend to
consult w ith state banking authorities
before imposing sanctions, as
appropriate.
Other commenters requested that the
agencies solicit public comment on any
plan proposed by the bank for meeting
the credit needs of the com m unity to
avoid a branch closing order. The
agencies w ill review any proposal by
19 Section 109 requires the appropriate agency to
issue a notice of intent to close a covered interstate
b ranch to the bank and schedule a hearing in
accordance w ith section 8(h) of the Federal Deposit
Insurance Act (12 U.S.C. 1818(h)) before a branch
can be closed.

the bank in light of all comments from
the public in the bank’s com m unity
contacts portion of the CRA
exam ination or through other activities,
and the bank’s public comm ent file. In
addition, the agencies intend to provide
an opportunity for public comment on
nonconfidential portions of the b ank’s
proposal.
Timing of Review
Some commenters stated that section
109 reviews and CRA performance
examinations should be conducted at
the same time. One commenter
requested clarification that section 109
reviews w ould be conducted more than
once, another commenter requested that
section 109 reviews be conducted
annually, and a third commenter
recom m ended a two-year grace period
before conducting the reviews.
As previously noted, the agencies
intend to conduct section 109 reviews
in connection w ith an evaluation of a
m ultistate b ank’s CRA performance in a
host state u n der section 110 of the
Interstate Act. The appropriate agency
w ill conduct a section 109 review of a
m ultistate bank during the section 110
review, and a section 109 review of
banks not subject to CRA, w hen the
agency deems such a review to be
necessary. The agencies w ill also
coordinate w ith state banking
authorities in applying section 109 to
state-chartered branches of foreign
banks that may be subject to section
109.
Other Comments
The agencies also received several
recom m endations that are inconsistent
w ith section 109. These suggestions
include: (1) Increasing the loan-todeposit screen to more than 50 percent;
(2) excluding a covered interstate
branch if it does not solicit deposits
from the public, or if it has a loan-todeposit ratio in the host state
comparable to the bank’s overall loanto-deposit ratio; (3) applying section 109
to all the bank’s interstate branches in
a host state rather than to “covered
interstate branches” ; (4) applying the
loan-to-deposit ratio to partial but
geographically specific lending data (for
example, home mortgages); and (5)
exempting a bank that prim arily lends
in a particular state from compliance
w ith the loan-to-deposit ratio screen and
from the calculation of the host state
loan-to-deposit ratio. The agencies
believe that it w ould be inappropriate to
im plem ent these recom m endations
because they are inconsistent w ith the
agencies’ understanding of the language
of section 109 and, accordingly, are not
adopting them in the final rule.

4 7 7 3 4 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Rules and Regulations
Regulatory Flexibility Act Analysis
Consistent w ith the requirem ent that
the agencies use only available
information to conduct a section 109
review, the final rule does not impose
any additional regulatory burden on
banks beyond w hat is required by
statute. In particular, the final rule does
not impose any additional paperw ork or
reporting requirements. Thus, the final
rule w ill not have a significant
economic im pact on a substantial
num ber of small entities consistent w ith
the Regulatory Flexibility Act (5 U.S.C.
601 et seq.). Moreover, the final rule
affects only banks that have branches in
more than one state, w hich are
prim arily larger banks. However, the
agencies note that some institutions
w ith covered interstate branches may be
subject to more extensive examinations
or requests for inform ation necessary to
obtain the relevant data if the agencies
determine to impose sanctions. As
noted above, the agencies believe that
this information is required by the twostep analysis under section 109 before
sanctions can be imposed, and that
there are no feasible alternatives to
mitigate this potential burden.
Paperwork Reduction Act
The agencies have determ ined that
the final rule w ould not increase the
regulatory paperw ork burden of banking
organizations pursuant to the provisions
of the Paperwork Reduction Act (44
U.S.C. 3501 etseq.).
Small Business Regulatory Enforcement
Fairness Act
The Small Business Regulatory
Enforcement Fairness Act of 1996
(SBREFA) (Title II, Pub. L. 104-121)
provides generally for agencies to report
rules to Congress and the General
Accounting Office (GAO) for review.
The reporting requirem ent is triggered
w hen a federal agency issues a final
rule. The agencies w ill file the
appropriate reports w ith Congress and
the GAO as required by SBREFA.
Because the Office of Management
and Budget has determ ined that the
uniform rule prom ulgated by the
agencies does not constitute a “major
ru le” as defined by SBREFA, the final
rule w ill take effect 30 days from
publication in the Federal Register.
OCC Executive Order 12866
Determination
The OCC has determ ined that this
final rule is not a significant regulatory
action.

OCC Unfunded Mandates Reform Act of U.S.C. 21, 22, 26, 27, 30, 36, 93a, 161,
215, 215a, 481, 1814, 1816, 1828(c),
1995 Determination
1835a, 2901 through 2907, and 3101
The OCC has determ ined that the
through 3111.
final rule w ould not result in
*
*
*
*
*
expenditures by state, local, and tribal
4.
Part 25 is am ended by adding a
governments, or by the private sector, of
new subpart E to read as follows:
$100 m illion or more in any one year.
Accordingly, a budgetary im pact
Subpart E— Prohibition Against Use of
statement is not required under section
Interstate Branches Primarily for Deposit
202 of the U nfunded Mandates Reform
Production
Act of 1995.
Sec.
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 amends part 25 of
chapter I of title 12 of the Code of
Federal Regulations as follows:
PART 25— COMMUNITY
REINVESTMENT ACT AND
INTERSTATE DEPOSIT PRODUCTION
REGULATIONS

1. The part heading for part 25 is
revised to read as set forth above.
2. The authority citation for part 25 is
revised to read as follows:
Authority: 12 U.S.C. 21, 22, 26, 27, 30, 36,
93a, 161, 215, 215a, 481, 1814, 1816, 1828(c),
1835a, 2901 through 2907, and 3101 through
3111.

3. Section 25.11 is am ended by
revising paragraph (a)(1) to read as
follows:
§25.11

Authority, purpose, and scope.

(a) A utho rity and OMB control
num ber—(1) Authority. The authority
for subparts A, B, C, D, and E is 12

25.61
25.62
25.63
25.64
25.65

Purpose and scope.
Definitions.
Loan-to-deposit ratio screen.
Credit needs determination.
Sanctions.

Subpart E— Prohibition Against Use of
Interstate Branches Primarily for
Deposit Production
§ 25.61

Purpose and scope.

(a) Purpose. The purpose of this
subpart is to im plem ent section 109 (12
U.S.C. 1835a) of the Riegle-Neal
Interstate Banking and Branching
Efficiency Act of 1994 (Interstate Act).
(b) Scope. (1) This subpart applies to
any national 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 that is a Federal branch for a
period of at least one year.
(2) This subpart describes the
requirem ents im posed under 12 U.S.C.
1835a, w hich requires the appropriate
Federal banking agencies (the OCC, the
Board of Governors of the Federal
Reserve System, and the Federal Deposit
Insurance Corporation) to prescribe
uniform rules that prohibit a bank from
using any authority to engage in
interstate branching pursuant to the
Interstate Act, or any am endm ent m ade
by the Interstate Act to any other
provision of law, prim arily for the
purpose of deposit production.
§ 2 5 .6 2

Definitions.

For purposes of this subpart, the
following definitions apply:
(a) B ank means, unless the context
indicates otherwise:
(1) A national bank; and
(2) A foreign bank as that term is
defined in 12 U.S.C. 3101(7) and 12 CFR
28. l l ( j ) .
(b) Covered interstate branch means
any branch of a national bank, and any
Federal branch of a foreign bank, that:
(1) Is established or acquired outside
the bank’s home state pursuant to the
interstate branching authority granted
by the Interstate Act or by any
am endm ent m ade 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

Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Rules and Regulations47735
state but for the establishm ent or
acquisition of a branch described in
paragraph (b)(1) of this section.
(c) Federal branch means Federal
branch as that term is defined in 12
U.S.C. 3101(6) and 12 CFR 28.11(i).
(d) H om e state means:
(1) W ith respect to a state bank, the
state that chartered the bank;
(2) W ith respect to a national bank,
the state in w hich the m ain office of the
bank is located; and
(3) W ith respect to a foreign bank, the
hom e state of the foreign bank as
determ ined in accordance w ith 12
U.S.C. 3103(c) and 12 CFR 28.11(o).
(e) H ost state m eans a state in w hich
a bank establishes or acquires a covered
interstate branch.
(f) H ost state loan-to-deposit ratio
generally means, w ith 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 institutions covered under
the definition of “bank” in 12 U.S.C.
1813(a)(1)) that have that state as their
home state, as determ ined and updated
periodically by the appropriate Federal
banking agencies and m ade available to
the public.
(g) State m eans state as th at term is
defined in 12 U.S.C. 1813(a)(3).
(h) Statew ide loan-to-deposit ratio
means, w ith respect to a bank, the ratio
of the bank’s loans to its deposits in a
state in w hich the bank has one or more
covered interstate branches, as
determ ined by the OCC.
§ 25.63

Loan-to-deposit ratio screen.

(a) A pplication o f screen. Beginning
no earlier than one year after a bank
establishes or acquires a covered
interstate branch, the OCC w ill consider
w hether the bank’s statewide loan-todeposit ratio is less than 50 percent of
the relevant host state loan-to-deposit
ratio.
(b) Results o f screen. (1) If the OCC
determines that the bank’s statewide
loan-to-deposit ratio is 50 percent or
more of the host state loan-to-deposit
ratio, no further consideration under
this subpart is required.
(2) If the OCC determines that the
bank’s statewide loan-to-deposit 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 statewide loan-todeposit ratio, the OCC w ill make a
credit needs determ ination for the bank
as provided in § 25.64.
§ 2 5 .6 4

Credit needs determ ination.

(a) In general. The OCC w ill review
the loan portfolio of the bank and
determ ine w hether the bank is

reasonably helping to m eet the credit
needs of the communities in the host
state that are served by the bank.
(b) Guidelines. The OCC w ill use the
following considerations as guidelines
w hen making the determ ination
pursuant to paragraph (a) of this section:
(1) W hether covered interstate
branches were formerly part of a failed
or failing depository institution;
(2) W hether 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) W hether covered interstate
branches have a high concentration of
commercial or credit card lending, trust
services, or other specialized activities,
including the extent to w hich the
covered interstate branches accept
deposits in the host state;
(4) The CRA ratings received by the
bank, if any;
(5) Economic conditions, including
the level of loan dem and, w ithin the
com munities served by the covered
interstate branches;
(6) The safe and sound operation and
condition of the bank; and
(7) The OCC’s CRA regulations
(subparts A through D of this part) and
interpretations of those regulations.
§ 2 5 .6 5

Sanctions.

(a) In general. If the OCC determines
that a bank is not reasonably helping to
m eet the credit needs of the
com m unities served by the bank in the
host state, and that the bank’s statewide
loan-to-deposit ratio is less than 50
percent of the host state loan-to-deposit
ratio, the OCC:
(1) May order that a bank’s covered
interstate branch or branches be closed
unless the bank provides reasonable
assurances to the satisfaction of the
OCC, after an opportunity for public
comment, that the bank has an
acceptable plan under w hich the bank
w ill reasonably help to meet the credit
needs of the com m unities served by the
bank in the host state; and
(2) Will not perm it the bank to open
a new branch in the host state that
w ould be considered to be a covered
interstate branch unless the bank
provides reasonable assurances to the
satisfaction of the OCC, after an
opportunity for public comment, that
the bank w ill reasonably help to meet
the credit needs of the com m unity that
the new branch w ill serve.
(b) N otice prior to closure o f a covered
interstate branch. Before exercising the
OCC’s authority to order the bank to
close a covered interstate branch, the
OCC w ill issue to the bank a notice of '

the OCC’s intent to order the closure
and w ill schedule a hearing w ith in 60
days of issuing the notice.
(c) Hearing. The OCC w ill conduct a
hearing scheduled u nder paragraph (b)
of this section in accordance w ith the
provisions of 12 U.S.C. 1818(h) and 12
CFR part 19.
Dated: September 4, 1997.
Eugene A. Ludwig,

Comptroller 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 amends 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, 4 8 1 ^ 8 6 , 601, 611,
1814, 1820(d)(9), 1823(j), 1828(o), 1831o,
1831p— 1835a, 3105, 3310, 3331-3351, and
1,
3906-3909; 15 U.S.C. 78b, 781(b), 781(g),
78l(i), 78o—
4(c)(5), 78q, 7 8 q -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
im plem ent section 109 (12 U.S.C.
1835a) of the Riegle-Neal Interstate
Banking and Branching Efficiency Act
of 1994 (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
requirem ents im posed under 12 U.S.C.
1835a, w hich requires the appropriate
Federal banking agencies (the Board, the
Office of the Comptroller of the
Currency, and the Federal Deposit
Insurance Corporation) to prescribe
uniform rules that prohibit a bank from
using any authority to engage in
interstate branching pu rsuant to the
Interstate Act, or any am endm ent made
by the Interstate Act to any other

47736 Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Rules and Regulations
provision of law, prim arily for the
purpose of deposit production.
(b) Definitions. For purposes of this
section, the following definitions apply:
(1) B ank means, unless the context
indicates otherwise:
(1) A State m em ber 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
2 1 1 .2 1 .

(2) Covered interstate branch means
any branch of a State mem ber bank, and
any uninsured branch of a foreign bank
licensed by a State, that:
(i) Is established or acquired outside
the bank’s home state pursuant to the
interstate branching authority granted
by the Interstate Act or by any
am endm ent m ade 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 bu t for the establishm ent or
acquisition of a branch described in
paragraph (b)(2)(i) of this section.
(3) H om e state means:
(1) W ith respect to a state bank, the
state that chartered the bank;
(ii) W ith respect to a national bank,
the state in w hich the m ain office of the
bank is located; and
(iii) W ith respect to a foreign bank,
the home state of the foreign bank as
determ ined in accordance w ith 12
U.S.C. 3103(c) and 12 CFR 211.22.
(4) H ost state means a state in w hich
a bank establishes or acquires a covered
interstate branch.
(5) H ost state loan-to-deposit ratio
generally means, w ith 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 institutions covered under
the definition of “bank” in 12 U.S.C.
1813(a)(1)) that have that state as their
home state, as determ ined and updated
periodically by the appropriate Federal
banking agencies and made available to
the public.
(6) State m eans state as that term is
defined in 12 U.S.C. 1813(a)(3).
(7) Statew ide loan-to-deposit ratio
means, w ith respect to a bank, the ratio
of the bank’s loans to its deposits in a
state in w hich the bank has one or more
covered interstate branches, as
determ ined by the Board.
(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 w ill
consider w hether the b ank’s statewide
loan-to-deposit ratio is less than 50
percent of the relevant host state loanto-deposit ratio.
(2) Results o f screen, (i) If the Board
determines that the bank’s statewide

acceptable plan under w hich the bank
loan-to-deposit ratio is 50 percent or
will reasonably help to meet the credit
more of the host state loan-to-deposit
needs of the com m unities served by the
ratio, no further consideration under
bank in the host state; and
this section is required.
(ii) If the Board determines that the
(ii) Will not perm it the bank to open
bank’s statewide loan-to-deposit ratio is
a new branch in the host state that
less than 50 percent of the host state
w ould be considered to be a covered
loan-to-deposit ratio, or if reasonably
interstate branch unless the bank
available data are insufficient to
provides reasonable assurances to the
calculate the bank’s statewide loan-tosatisfaction of the Board, after an
deposit ratio, the Board will make a
opportunity for public comment, that
credit needs determ ination for the bank
the bank w ill reasonably help to meet
as provided in paragraph (d) of this
the credit needs of the com m unity that
section.
the new branch w ill serve.
(d) Credit needs determ ination—(1) In
(2) Notice prior to closure o f a covered
general. The Board w ill review the loan
interstate branch. Before exercising the
portfolio of the bank and determine
Board’s authority to order the bank to
w hether the bank is reasonably helping
close a covered interstate branch, the
to meet the credit needs of the
Board w ill issue to the bank a notice of
communities in the host state that are
the Board’s intent to order the closure
served by the bank.
(2)
Guidelines. The Board w ill use the and w ill schedule a hearing w ithin 60
days of issuing the notice.
following considerations as guidelines
w hen making the determ ination
(3) Hearing. The Board w ill conduct a
pursuant to paragraph (d)(1) of this
hearing scheduled u nder paragraph
section:
(e)(2) of this section in accordance w ith
(i) W hether covered interstate
the provisions of 12 U.S.C. 1818(h) and
branches were formerly part of a failed
12 CFR part 263.
or failing depository institution;
(ii) W hether covered interstate
PART 211—INTERNATIONAL
branches were acquired under
BANKING OPERATIONS
circumstances where there was a low
(REGULATION K)
loan-to-deposit ratio because of the
1. The authority citation for part 211
nature of the acquired institution’s
business or loan portfolio;
is revised to read as follows:
(iii) W hether covered interstate
Authority: 12 U.S.C. 221 et seq., 1818,
branches have a high concentration of
1835a, 1841 et seq., 3101 et seq., and 3901
commercial or credit card lending, trust
et seq.
services, or other specialized activities,
2. In § 211.22, a new paragraph (d) is
including the extent to w hich the
added to read as follows:
covered interstate branches accept
deposits in the host state;
§ 211.22 Interstate banking operations of
(iv) The Community Reinvestment
foreign banking organizations
Act ratings received by the bank, if any,
*
*
*
*
*
under 12 U.S.C. 2901 et seq.',
(v) Economic conditions, including
(d) Prohibition against interstate
the level of loan demand, w ithin the
deposit production offices. A covered
com munities served by the covered
interstate branch of a foreign bank may
interstate branches;
not be used as a deposit production
(vi) The safe and sound operation and office in accordance w ith the provisions
condition of the bank; and
in § 208.28 of the Board’s Regulation H
(vii) The Board’s Regulation BB—
(12 CFR 208.28).
Community Reinvestment (12 CFR Part
By order of the Board of Governors of the
228) and interpretations of that
Federal Reserve System, September 4, 1997.
regulation.
William W. Wiles,
(e) Sanctions—(1) In general. If the
Secretary o f the Board.
Board determines that a bank is not
reasonably helping to m eet the credit
Federal Deposit Insurance Corporation
needs of the com m unities served by the
bank in the host state, and that the
12 CFR Chapter III
bank’s statewide loan-to-deposit ratio is
less than 50 percent of the host state
Authority and Issuance
loan-to-deposit ratio, the Board:
For the reasons set forth in the joint
(i)
May order that a bank’s covered
preamble, the Board of Directors of the
interstate branch or branches be closed
Federal Deposit Insurance Corporation
unless the bank provides reasonable
adds part 369 to chapter III of title 12
assurances to the satisfaction of the
of the Code of Federal Regulations to
Board, after an opportunity for public
read as follows:
comment, that the bank has an

Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Rules and Regulations47737
PART 369— PROHIBITION AGAINST
USE OF INTERSTATE BRANCHES
PRIMARILY FOR DEPOSIT
PRODUCTION
Sec.
369.1 Purpose and scope.
369.2 Definitions.
369.3 Loan-to-deposit ratio screen.
369.4 Credit needs determination.
369.5 Sanctions.
Authority: 12 U.S.C. 1819 (Tenth) and
1835a.
§369.1

Purpose and scope.

(a) Purpose. The purpose of this part
is to im plem ent section 109 (12 U.S.C.
1835a) of the Riegle-Neal Interstate
Banking and Branching Efficiency Act
of 1994 (Interstate Act).
(b) Scope—(1) This part applies to any
State nonm em ber bank that has
operated a covered interstate branch for
a period of at least one year.
(2)
This part describes the
requirem ents im posed under 12 U.S.C.
1835a, w hich requires the appropriate
Federal banking agencies (the FDIC, the
Office of the Comptroller of the
Currency, and the Board of Governors of
the Federal Reserve System) to prescribe
uniform rules that prohibit a bank from
using any authority to engage in
interstate branching pu rsuant to the
Interstate Act, or any am endm ent made
by the Interstate Act to any other
provision of law, prim arily for the
purpose of deposit production.
§3 6 9.2

Definitions.

For purposes of this part, the
following definitions apply:
(a) B ank means, unless the context
indicates otherwise:
(1) A State nonm em ber bank; and
(2) A foreign bank as that term is
defined in 12 U.S.C. 3101(7) and 12 CFR
346.1(a).
(b) Covered interstate branch means
any branch of a State nonm em ber bank,
and any insured branch of a foreign
bank licensed by a State, that:
(1) Is established or acquired outside
the bank’s home state pursuant to the
interstate branching authority granted
by the Interstate Act or by any
am endm ent m ade 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 establishm ent or
acquisition of a branch described in
paragraph (b)(1) of this section.
(c) H om e state means:
(1) W ith respect to a state bank, the
state that chartered the bank;
(2) W ith respect to a national bank,
the state in w hich the m ain office of the
bank is located; and
(3) W ith respect to a foreign bank, the
hom e state of the foreign bank as

determ ined in accordance w ith 12
U.S.C. 3103(c) and 12 CFR 346.1(j).
(d) H ost state means a state in w hich
a bank establishes or acquires a covered
interstate branch.
(e) H ost state loan-to-deposit ratio
generally means, w ith 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 institutions covered under
the definition of “b ank” in 12 U.S.C.
1813(a)(1)) that have that state as their
home state, as determ ined and updated
periodically by the appropriate Federal
banking agencies and m ade available to
the public.
(f) State m eans state as that term is
defined in 12 U.S.C. 1813(a)(3).
(g) Statew ide loan-to-deposit ratio
means, w ith respect to a bank, the ratio
of the bank’s loans to its deposits in a
state in w hich the bank has one or more
covered interstate branches, as
determ ined by the FDIC.
§ 369.3

Loan-to-deposit ratio screen.

(a) A pplication o f screen. Beginning
no earlier than one year after a bank
establishes or acquires a covered
interstate branch, the FDIC w ill consider
w hether the bank’s statewide loan-todeposit ratio is less than 50 percent of
the relevant host state loan-to-deposit
ratio.
(b) R esults o f screen. (1) If the FDIC
determines that the bank’s statewide
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
b ank’s statewide loan-to-deposit 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 statewide loan-todeposit ratio, the FDIC w ill make a
credit needs determ ination for the bank
as provided in § 369.4.
§ 3 6 9.4

Credit needs determ ination.

(a) In general. The FDIC w ill review
the loan portfolio of the bank and
determine w hether the bank is
reasonably helping to meet the credit
needs of the com m unities in the host
state that are served by the bank.
(b) Guidelines. The FDIC w ill use the
following considerations as guidelines
w hen making the determ ination
pursuant to paragraph (a) of this section:
(1) W hether covered interstate
branches w ere formerly part of a failed
or failing depository institution;
(2) W hether 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) W hether covered interstate
branches have a high concentration of
commercial or credit card lending, trust
services, or other specialized activities,
including the extent to w hich 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.;
(5) Economic conditions, including
the level of loan dem and, w ithin the
com munities served by the covered
interstate branches;
(6) The safe and sound operation and
condition of the bank; and
(7) The FDIC’s Community
Reinvestment regulations (12 CFR Part
345) and interpretations of those
regulations.
§ 3 6 9.5

Sanctions.

(a) In general. If the FDIC determines
that a bank is not reasonably helping to
meet the credit needs of the
com m unities served by the bank in the
host state, and that the bank’s statewide
loan-to-deposit ratio is less than 50
percent of the host state loan-to-deposit
ratio, the FDIC:
(1) May order that a b ank’s covered
interstate branch or branches be closed
unless the bank provides reasonable
assurances to the satisfaction of the
FDIC, after an opportunity for public
comment, that the bank has an
acceptable plan under w hich the bank
w ill reasonably help to m eet the credit
needs of the com m unities served by the
bank in the host state; and
(2) W ill not perm it the bank to open
a new branch in the host state that
w ould be considered to be a covered
interstate branch unless the bank
provides reasonable assurances to the
satisfaction of the FDIC, after an
opportunity for public comment, that
the bank w ill reasonably help to meet
the credit needs of the com m unity that
the new branch w ill serve.
(b) N otice prior to closure o f a covered
interstate branch. Before exercising the
FDIC’s authority to order the bank to
close a covered interstate branch, the
FDIC will issue to the bank a notice of
the FDIC’s intent to order the closure
and w ill schedule a hearing w ithin 60
days of issuing the notice.
(c) Hearing. The FDIC will conduct a
hearing scheduled u n der paragraph (b)
of this section in accordance w ith the
provisions of 12 U.S.C. 1818(h) and 12
CFR part 308.
By order of the Board of Directors.
Dated at W ashington, D.C., this 26th day of
August, 1997.

47738Federal Register / Vol. 62, No. 175 / Wednesday, September 10, 1997 / Rules and Regulations
Federal Deposit Insurance Corporation.
Valerie J. Best,

Assistant Executive Secretary.
[FR Doc. 97-23950 Filed 9-9-9 7; 8:45 am]
BILLING CODE 4810- 33- P , 6210- 01- P , 6714- 01- P

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