State Loan-to-Deposit Ratios: Better Late than Never?

by: Tyler Durden

The FDIC today made public for the first time host state loan-to-deposit ratios. Alas, the data is quite dated, as it represents the June 30, 2008 snapshot. Since then one can imagine things have changed quite a bit. The data are being released in order to calculate complaince with "section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994."

Here is what the FDIC has to say about section 109:

In general, section 109 prohibits a bank from establishing or acquiring a branch or branches outside of its home state primarily for the purpose of deposit production. Section 106 of the Gramm-Leach-Bliley Act of 1999 amended coverage of section 109 of the Interstate Act to include any branch of a bank controlled by an out-of-state bank holding company.
To determine compliance with section 109, the appropriate agency first compares a bank's statewide loan-to-deposit ratio2 to the host state loan-to-deposit ratio for a particular state. If the bank's statewide loan-to-deposit ratio is at least one-half of the published host state loan-to-deposit ratio, the bank has complied with section 109. A second step is conducted if a bank's statewide loan-to-deposit ratio is less than one-half of the published ratio for that state or if data are not available at the bank to conduct the first step. The second step requires the appropriate banking agency to determine whether the bank is reasonably helping to meet the credit needs of the communities served by the bank's interstate branches. A bank that fails both steps is in violation of section 109 and subject to sanctions by the appropriate agency.

Going forward, the FDIC will release this data on an annual basis, so readers will have to wait until June 2010, to realize that loan-to-deposits for the current period is likely over 200% or below 50%. One could easily make arguments for both.