The Federal Reserve released additional information for banks to stay compliant with the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
According to the Interstate Act, banks are prohibited from establishing or acquiring a branch or branches outside of the firm's home state primarily for the purpose of deposit production.
This also includes any branch of a bank controlled by an out-of-state bank holding company.
In order to enforce the rule, the agency compares a bank’s statewide loan-to-deposit ratio to the estimated host state loan-to-deposit ratio.
In light of this, the Federal Reserve released the official state loan-to-deposit ratios that the agency will use to determine compliance.
Each state varies on their loan-to-deposit ratio, with some as low as 55% and others as high as 88%.
If the bank is not compliant with the first part, an agency will determine if the bank is making a reasonable effort to meet the credit needs of the communities. A bank that fails both steps is not compliant.