[Federal Register Volume 62, Number 51 (Monday, March 17, 1997)]
[Proposed Rules]
[Pages 12730-12738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6599]



[[Page 12729]]

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Part IV





Department of the Treasury





_______________________________________________________________________



Office of the Comptroller of the Currency



_______________________________________________________________________
Federal Reserve System
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Federal Deposit Insurance Corporation
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12 CFR Part 25, et al.



Prohibition Against Use of Interstate Branches Primarily for Deposit 
Production; Proposed Rule

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

[[Page 12730]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 25

[Docket No. 97-04]
RIN 1557-AB50

FEDERAL RESERVE SYSTEM

12 CFR 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.

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SUMMARY: The OCC, Board, and FDIC (collectively, agencies) propose to 
adopt uniform regulations to implement section 109 (section 109) of the 
Riegle-Neal 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.

ADDRESSES:

    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. Comments will be 
available for inspection and photocopying at that address. In addition, 
comments may be sent by facsimile transmission to FAX number (202) 874-
5274, or by electronic mail to <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="a2f0e7e5f18ce1edefefe7ecf6f1e2ede1e18cf6f0e7e3f18ce5edf48c">[email protected]</a>
    Board: Comments should refer to Docket No. R-0962, and may be 
mailed to William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551. Comments also may be delivered to the Board's 
mail room between 8:45 and 5:15 p.m. on weekdays, and to the security 
control room at all other times. The mail room and the security control 
room are accessible from the courtyard entrance on 20th Street between 
Constitution Avenue and C Street, NW., Comments may be inspected in 
Room MP-500 of the Martin Building between 9:00 a.m. and 5:00 p.m. 
weekdays, except as provided in 12 CFR 261.8 of the Board's Rules 
Regarding Availability of Information.
    FDIC: Written comments should be directed to Jerry L. Langley, 
Executive Secretary, Attention: Room F-400, Federal Deposit Insurance 
Corporation, 550 17th Street NW., Washington, DC 20429. Comments may be 
hand delivered to Room F-400, 1776 F Street NW., Washington, DC 20429 
on business days between 8:30 a.m. and 5 p.m. (Fax number (202) 898-
3838; Internet address: <a href="/cdn-cgi/l/email-protection#ef8c8082828a819b9caf898b868cc1888099"><span class="__cf_email__" data-cfemail="caa9a5a7a7afa4beb98aacaea3a9e4ada5bc">[email protected]</span></a>). Comments will be available 
for inspection and photocopying in Room 7118, 550 17th Street, NW., 
Washington, DC 20429, between 9 a.m. and 4:30 p.m. on business days.

FOR FURTHER INFORMATION CONTACT:

    OCC: Neil M. Robinson, Senior Attorney, or Kevin L. Lee, Senior 
Attorney, Community & Consumer Law Division (202) 874-5750; or Andrew 
T. Gutierrez, Attorney, Legislative and Regulatory Activities Division 
(202) 874-5090.
    Board: Diane Koonjy, Senior Attorney, (202) 452-3274, Lawranne 
Stewart, Senior Attorney, (202) 452-3513, or, with respect to foreign 
banks, Christopher Clubb, Senior Attorney, (202) 452-3778, Legal 
Division; or Shawn McNulty, Assistant Director, (202) 452-3946, 
Division of Consumer and Community Affairs.
    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 Act <SUP>1 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.<SUP>2 The agencies 
must also provide guidelines to ensure that banks that operate such 
branches are reasonably helping to meet the credit needs of the 
communities served by the branches. Congress enacted section 109 to 
ensure that the new interstate branching authority provided by the 
Interstate Act would not result in the taking of deposits from a 
community without concern for the credit needs of that community. See 
H.R. Rep. No. 651, 103d Cong., 2d Sess. 62 (1994).
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    \1\ Pub. L. 103-328, 108 Stat. 2338, 12 U.S.C. 1835a.
    \2\ Before the Interstate Act, foreign banks were permitted to 
establish agencies and limited branches outside their home state 
under the International Banking Act (IBA) (12 U.S.C. 3101 et seq.). 
Since this authority was not conferred by the Interstate Act, or any 
amendment by the Interstate Act to any other provision of law, banks 
that only establish interstate agencies and limited branches under 
the IBA are not covered by section 109. Domestic banks may also have 
branches located outside a bank's home state that are not within the 
scope of section 109 because they are not established or acquired 
pursuant to authority in the Interstate Act. For example, domestic 
banks may have branches grandfathered under the McFadden Act (12 
U.S.C. 36) and branches retained following an interstate relocation 
under 12 U.S.C. 30.
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    The agencies' proposed uniform rules apply to any bank that 
establishes or acquires, directly or indirectly, a branch under the 
authority of the Interstate Act or amendments made by the Interstate 
Act. These branches are referred to as ``covered interstate branches.'' 
The proposed rules provide that, beginning no earlier than one year 
after a bank establishes or acquires a covered interstate branch, the 
appropriate agency will determine whether reasonably available data 
exist that will enable the agency to perform a ``loan-to-deposit ratio 
screen.''
    The loan-to-deposit ratio screen compares the bank's loan-to-
deposit ratio within the state where the bank's covered interstate 
branch is located (covered interstate branch loan-to-deposit ratio) 
with the loan-to-deposit ratio of banks whose home state is that state 
(host state loan-to-deposit ratio). If the loan-to deposit ratio screen 
indicates that the bank's covered interstate branch loan-to-deposit 
ratio is at least 50 percent of the host state loan-to-deposit ratio, 
no further analysis is required. However, if the appropriate agency 
determines that the bank's covered interstate branch loan-to-deposit 
ratio is less than 50 percent of the host state loan-to-deposit ratio, 
or determines that reasonably available data do not exist that will 
permit the agency to determine the bank's covered interstate branch

[[Page 12731]]

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-to-deposit 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-to-
deposit 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-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 covered interstate branch loan-to-deposit 
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-to-deposit 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 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-to-deposit 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

[[Page 12732]]

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 home-improvement loans originated or purchased, 
and refinancings of both, by geographic location of the property 
subject to the mortgage.<SUP>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 
decision).<SUP>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.
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    \3\ HMDA imposes reporting requirements on federally insured 
depository institutions that in any year make at least one first-
lien home-purchase loan secured by a one- to four-family dwelling, 
other than institutions that did not have a home or branch office in 
an MSA or that had assets of $28 million or less at the end of the 
previous calendar year. The reporting requirements also are imposed 
on certain mortgage lending subsidiaries and affiliates of 
depository institutions and independent mortgage companies, unless 
the subsidiary, affiliate, or independent company did not have a 
home or branch office in an MSA at the end of the previous calendar 
year, or had, together with its parent, assets of $28 million or 
less and originated less than 100 mortgages in the previous calendar 
year.
    \4\ These reporting requirements do not apply to a bank that, as 
of December 31 of either of the prior two calendar years, had total 
assets of less than $250 million and was independent or an affiliate 
of a holding company that, as of December 31 of either of the prior 
two calendar years, had total banking and thrift assets of less than 
$1 billion.
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    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

Covered Interstate Branch Loan-to-Deposit 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 covered interstate branch, they would not be 
booked at that branch. Sampling of loan files also would not provide 
information on loans that have been sold. Since practices regarding 
loan sales differ from bank to bank, there may be large variations in 
the loan-to-deposit ratios for individual banks over time that do not 
reflect underlying lending activity. If loans were booked at the 
covered interstate branch closest to the borrower, the agencies would 
have to expand significantly the extent and duration of their current 
examinations in order to obtain this information 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-to-deposit 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-to-deposit ratio.

Host State Loan-to-Deposit Ratio

    The agencies anticipate that the host state loan-to-deposit ratio 
would be calculated jointly by the agencies from the data reported by 
banks in the Call Reports by dividing the total dollar amount of 
outstanding loans held by home state banks by the total dollar amount 
of deposits held by such banks. The ratio, which would be periodically 
updated, and the methodology used to calculate the ratio would be made 
available to the public. Determining the appropriate method of 
calculating a ratio that accurately reflects the deposit taking and 
lending activities of home state banks raises several issues discussed 
later.
    Data for specialized banks that do not engage in traditional 
deposit taking or lending may distort the host state loan-to-deposit 
ratio. Limited purpose banks,

[[Page 12733]]

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.<SUP>5 On the other hand, excluding multistate 
banks completely also could distort the host state loan-to-deposit 
ratio.
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    \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.
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    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 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-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 covered interstate branch loan-to-
deposit 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.<SUP>6
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    \6\ The new CRA regulations permit the agencies to evaluate a 
bank's performance in the context of a number of considerations, 
including the nature of the bank's product offerings and business 
strategy, the lending opportunities within a bank's assessment 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).
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    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,<SUP>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

[[Page 12734]]

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.
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    \7\ A special purpose bank does not perform commercial or retail 
banking services by granting credit to the public in the ordinary 
course of business, and 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). An uninsured branch of a foreign 
bank also is not evaluated for CRA performance 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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    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.<SUP>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.
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    \8\ U.S. branches of foreign banks generally accept only 
uninsured wholesale deposits. In 1991, the Federal Deposit Insurance 
Corporation Improvement Act amended the IBA to prohibit U.S. 
branches of foreign banks from taking deposits in amounts of less 
than $100,000, other than through the relatively few branches that 
were 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 under the 
Interstate Act cannot take retail deposits or draw a significant 
level of deposits from the community, retail-oriented deposit 
markets where the branches are located.
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    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-to-deposit 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 loan-to-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 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 of 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 Act 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:

[[Page 12735]]

PART 25--COMMUNITY REINVESTMENT ACT REGULATIONS

    1. 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.

    2. Part 25 is amended by adding a new subpart E to read as follows:

Subpart E--Prohibition Against Use of Interstate Branches Primarily 
for Deposit Production

Sec.
25.61  Authority, purpose, and scope.
25.62  Definitions.
25.63  Loan-to-deposit ratio screen.
25.64  Credit needs determination.
25.65  Sanctions.

Subpart E--Prohibition Against Use of Interstate Branches Primarily 
for Deposit Production


Sec. 25.61  Authority, purpose, and scope.

    (a) Authority. The authority for this part is 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.
    (b) 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).
    (c) 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 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.


Sec. 25.62  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Bank 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 28.11(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 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.
    (c) Covered interstate branch loan-to-deposit 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 OCC.
    (d) Federal branch means federal branch as that term is defined in 
12 U.S.C. 3101(7) and 12 CFR 28.11(i).
    (e) 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) and 12 CFR 
28.11(o).
    (f) Host state means a state in which a bank establishes or 
acquires a covered interstate branch.
    (g) 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.
    (h) State means state as that term is defined in 12 U.S.C. 
1813(a)(3).


Sec. 25.63  Loan-to-deposit ratio screen.

    (a) Application of screen. Beginning no earlier than one year after 
a bank establishes or acquires a covered interstate branch, the OCC 
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 of screen. (1) If the OCC 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 subpart is required.
    (2) If the OCC determines that the bank's covered interstate branch 
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 covered interstate branch loan-to-deposit ratio, 
the OCC will make a credit needs determination for the bank as provided 
in Sec. 25.64.


Sec. 25.64  Credit needs determination.

    (a) In general. The OCC 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 OCC will use the following considerations as 
guidelines when making the determination pursuant to paragraph (a) of 
this section:
    (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 CRA ratings received by the bank, if any, 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 communities served by the covered interstate branches;
    (6) The safe and sound operation and condition of the bank; and
    (7) The OCC's Community Reinvestment Act Regulations (subparts A 
through D of this part) and interpretations of those regulations.


Sec. 25.65  Sanctions.

    (a) In general. If the OCC determines that a bank is not reasonably 
helping to meet the credit needs of the communities served by the bank 
in the host state, and that the bank's covered interstate branch 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 that the bank has an acceptable plan under 
which the bank will reasonably help to meet the credit needs of the 
communities served by the bank in the host state; and
    (2) Will not permit the bank to open a new interstate branch in the 
host state that would be considered to be a covered interstate branch 
under Sec. 25.62(b) unless the bank provides

[[Page 12736]]

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 of 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 11, 1997.
Eugene A. Ludwig,
Comptroller of 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, 
481-486, 601, 611, 1814, 1820(d)(9), 1823(j), 1828(o), 1831o, 1831p-
1, 1835a, 3105, 3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 
781(b), 781(g), 781(i), 78o-4(c)(5), 78q, 78q-1, and 78w; 31 U.S.C. 
5318.

    2. A new Sec. 208.28 is added to subpart A to read as follows:


Sec. 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:
    (i) 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-to-deposit 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 of 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 of 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-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 covered interstate branch loan-to-deposit 
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

[[Page 12737]]

bank in the host state, and that the bank's covered interstate branch 
loan-to-deposit ratio is less than 50 percent of the host state loan-
to-deposit ratio, the Board:
    (i) May order that a bank's covered interstate branch or branches 
be closed unless the bank provides reasonable assurances to the 
satisfaction of the Board that the bank has an acceptable plan under 
which the bank will reasonably help to meet the credit needs of the 
communities served by the bank in the host state; and
    (ii) Will not permit the bank to open a new interstate branch in 
the host state that would be considered to be a covered interstate 
branch under paragraph (b)(2) of this section unless the bank provides 
reasonable assurances to the satisfaction of the Board that the bank 
will reasonably help to meet the credit needs of the community that the 
new interstate branch will serve.
    (2) Notice prior to closure of covered interstate branches. Before 
exercising the Board's authority to order the bank to close a covered 
interstate branch or branches, the Board will issue to the bank notice 
of the Board's intent to order the closure and will schedule a hearing 
within 60 days of issuing the notice.
    (3) Hearing. A hearing scheduled under paragraph (e)(2) of this 
section will be conducted under the provisions of 12 U.S.C. 1818(h) and 
12 CFR part 263.

PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)

    1. The authority citation for part 211 is revised to read as 
follows:

    Authority: 12 U.S.C. 221 et seq., 1818, 1835a, 1841 et seq., 
3101 et seq., and 3901 et seq.

    2. In Sec. 211.22, a new paragraph (d) is added to read as follows:


Sec. 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 
Sec. 208.28 of the Board's Regulation H (12 CFR 208.28).

    By order of the Board of Governors of the Federal Reserve 
System, March 11, 1997.
Jennifer J. Johnson,
Deputy Secretary of the Board.

Federal Deposit Insurance Corporation

12 CFR CHAPTER III

Authority and Issuance

    For the reasons set forth in the joint preamble, the Board of 
Directors of the Federal Deposit Insurance Corporation proposes to add 
part 369 to chapter III of title 12 of the Code of Federal Regulations 
to read as follows:

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.


Sec. 369.1  Purpose and scope.

    (a) Purpose. The purpose of this part 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).
    (b) Scope. (1) This part applies to any State nonmember bank that 
has operated a covered interstate branch for a period of at least one 
year.
    (2) This part 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.


Sec. 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.
    (c) Covered interstate branch loan-to-deposit 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).


Sec. 369.3  Loan-to-deposit ratio screen.

    (a) Application of 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 of 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-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 covered interstate branch loan-to-deposit 
ratio, the FDIC will make a credit needs determination for the bank as 
provided in Sec. 369.4.


Sec. 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:

[[Page 12738]]

    (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 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.


Sec. 369.5  Sanctions.

    (a) In general. If the FDIC determines that a bank is not 
reasonably helping to meet the credit needs of the communities served 
by the bank in the host state, and that the bank's covered interstate 
branch loan-to-deposit ratio is less than 50 percent of the host state 
loan-to-deposit ratio, the FDIC:
    (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 FDIC that the bank has an acceptable plan under 
which the bank will reasonably help to meet the credit needs of the 
communities served by the bank in the host state; and
    (2) Will not permit the bank to open a new interstate branch in the 
host state that would be considered to be a covered interstate branch 
under Sec. 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 of covered interstate branches. Before 
exercising the FDIC's authority to order the bank to close a covered 
interstate branch or branches, the FDIC will issue to the bank notice 
of the FDIC'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 308.

    By order of the Board of Directors.

    Dated at Washington, D.C., this 11th day of March, 1997.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Deputy Executive Secretary.
[FR Doc. 97-6599 Filed 3-14-97; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P


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