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Inactive Financial Institution Letters 


[Federal Register: March 17, 1997 (Volume 62, Number 51)]
[Proposed Rules]
[Page 12729-12738]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17mr97-44]

[[Page 12729]]

_______________________________________________________________________

Part IV

Department of the Treasury

_______________________________________________________________________

Office of the Comptroller of the Currency

_______________________________________________________________________
Federal Reserve System
_______________________________________________________________________
Federal Deposit Insurance Corporation
_______________________________________________________________________

12 CFR Part 25, et al.

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

[[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 REGS.COMMENTS@OCC.TREAS.GOV.
    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: comments@fdic.gov). 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 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.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.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).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.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.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,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.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
Last Updated 07/17/1999 communications@fdic.gov