CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2002 No. 7 June 7, 2002

Vol 2002 No. 7 June 7 2002

Expansion of Prohibition Against Using Interstate Branches for Deposit Production

The OCC, Federal Reserve Board, and the FDIC ("Agencies") have issued regulations under the Gramm-Leach-Bliley Act of 1999 extending the prohibition against establishing or acquiring out-of-state branches primarily for deposit production. The amendment extends the prohibition to include banks or branches controlled by an out-of-state bank holding company, including a bank consisting only of a main office.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Interstate Act) expanded interstate branching authority, but prohibited the use of interstate branches primarily for deposit production. In 1997, the agencies established a loan-to-deposit ratio screen and a credit needs assessment (to include CRA performance) to determine whether credit needs are met in the communities where the out of state branches are located

Section 106 of GLBA amended the Interstate Act by changing the definition of an "interstate branch" to include any branch of a bank controlled by an out-of-state bank holding company (as defined in section 2(o)(7) of the Bank Holding Company Act of 1956 (BHC Act)). The final rule broadens this prohibition to apply not only to branches established pursuant to the Interstate Act, but also to any bank or branch of a bank controlled by an out-of-state bank holding company, to include a bank's main office, whether or not it also has branches. Conformingchanges are made to revise the definition of "host state" and to the application of the loan-to-deposit ratio screen to the newly covered entities.

A bank holding company's home state is the state where the total deposits of all the banking subsidiaries were the largest as of the later of July 1, 1966, or the date the bank holding company was formed. For purposes of determining whether a branch of a U.S. bank controlled by a foreign bank is a covered interstate branch, the same test is applied to determine the foreign bank's home state. A foreign bank may have different home states with respect to direct offices and subsidiary banks. For purposes of determining whether a U.S. branch of a foreign bank is a covered interstate branch, a foreign bank's home state is determined under section 5 of the International Banking Act of 1978 (12 U.S.C. 3103) and the corresponding regulations of the Agencies (Federal Reserve: 12 CFR Section 211.22; OCC: 12 CFR Section 28.11(o); FDIC: 12 CFR Section 347.202(j)).

The final rules are effective October 1, 2002. For further information, contact:

OCC: Karen Tucker at (202) 874-4428; or with respect to foreign banks, Martha Clarke at (202) 874-5090.
Federal Reserve: Michael J. O'Rourke at (202) 452-3288; or with respect to foreign banks, Ann E. Misback at (202) 452-3788.
FDIC: Louise Kotoshirodo Kramer at (202) 942-3599.