[Federal Register Volume 67, Number 109 (Thursday, June 6, 2002)]
[Rules and Regulations]
[Pages 38844-38849]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14130]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 25

[Docket No. 02-09]
RIN 1557-AB95

FEDERAL RESERVE SYSTEM

12 CFR Part 208

[Regulation H; Docket No. R-1099]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 369

RIN 3064-AC36


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 final rule.

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SUMMARY: The OCC, the Board, and the FDIC (collectively, the 
``Agencies'') are amending their uniform regulations implementing 
section 109 of the Riegle-Neal Interstate Banking and Branching 
Efficiency Act of 1994 (Interstate Act) to effectuate the amendment 
contained in section 106 of the Gramm-Leach-Bliley Act of 1999. Section 
109 prohibits 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 provides guidelines for 
determining whether such bank is reasonably helping to meet the credit 
needs of the communities served by these branches. Section 106 of the 
Gramm-Leach-Bliley Act of 1999 expanded the coverage of section 109 of 
the Interstate Act to include any branch of a bank controlled by an 
out-of-State bank holding company. This final rule amends the 
regulatory prohibition against branches being used as deposit 
production offices to include any bank or branch of a bank controlled 
by an out-of-State bank holding company, including a bank consisting 
only of a main office.

EFFECTIVE DATE: October 1, 2002.

FOR FURTHER INFORMATION CONTACT:
    OCC: Karen Tucker, National Bank Examiner, Compliance Division, 
(202) 874-4428; Kathryn Ray, Counsel, Community and Consumer Law 
Division, (202) 874-5750; Patrick T. Tierney, Attorney, Legislative and 
Regulatory Activities Division, (202) 874-5090; or with respect to 
foreign banks, Martha Clarke, Acting Assistant Director, Legislative 
and Regulatory Activities Division, (202) 874-5090.
    Board: Michael J. O'Rourke, Counsel, Legal Division, (202) 452-
3288; Shawn McNulty, Assistant Director, Division of Consumer and 
Community Affairs, (202) 452-3946; or with respect to foreign banks, 
Ann E. Misback, Assistant General Counsel, Legal Division, (202) 452-
3788.
    FDIC: Louise Kotoshirodo Kramer, Policy Analyst, Division of 
Compliance and Consumer Affairs, (202) 942-3599; or Mark Mellon, 
Counsel, Supervision and Legislation Section, (202) 898-3884.

SUPPLEMENTARY INFORMATION: The contents of this preamble are listed in 
the following outline:

I. Background
II. Overview of the Comments Received
III. Analysis of the Joint Final Rule
    A. Bank Locations Subject to Section 109 as Amended
    1. Coverage of Banks' Main Offices
    2. Coverage of Interstate and Intrastate Branches
    B. Multi-Tier Bank Holding Companies
    C. Definition of ``Home State'' for a Bank Holding Company
    D. Foreign Banks and Branches
    E. Impact of the Rule
IV. Regulatory Analysis
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Act
    C. OCC Executive Order 12866
    D. OCC Unfunded Mandates Reform Act of 1995
    E. The Treasury and General Government Appropriations Act, 1999-
-Assessment of Impact of Federal Regulation on Families

[[Page 38845]]

    F. Plain Language

I. 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. Section 109 of the Interstate Act requires the 
Agencies to prescribe uniform rules that prohibit the use of the Act's 
interstate branching authority primarily for the purpose of deposit 
production.\2\ 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 banks 
reasonably helping to meet the credit needs of that community. See H.R. 
Conf. Rep. No. 103-651, at 62 (1994).
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    \1\ Pub. L. 103-328, 108 Stat. 2338.
    \2\ 12 U.S.C. 1835a.
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    As required by section 109, the Agencies issued a joint final rule 
implementing section 109, 62 FR 47728 (September 10, 1997). This rule 
provides that, beginning no earlier than one year after a bank 
establishes or acquires a covered interstate branch, the appropriate 
agency will determine whether the bank satisfies a loan-to-deposit 
ratio screen \3\ that has been established by section 109.
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    \3\ The loan-to-deposit ratio screen compares a bank's loan-to-
deposit ratio within the State where the bank's covered interstate 
branches are located (statewide loan-to-deposit ratio) with the 
loan-to-deposit ratio of all banks chartered or headquartered in 
that State (host State loan-to-deposit ratio). Host State loan-to-
deposit ratios, based on reasonably available data, are jointly 
published by the Agencies every year.
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    If the bank's statewide loan-to-deposit ratio is at least 50 
percent of the host State loan-to-deposit ratio, no further analysis is 
required. If, however, the appropriate agency determines that the 
bank's statewide loan-to-deposit ratio is less than 50 percent of the 
host State loan-to-deposit ratio, then the agency must perform a credit 
needs determination.\4\ Under the credit needs determination, the 
appropriate agency reviews the activities of the bank, such as its 
lending activity and its performance under the Community Reinvestment 
Act (CRA), and determines whether the bank is reasonably helping to 
meet the credit needs of the communities served by the bank in the host 
State.
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    \4\ A credit needs determination also would be performed if the 
appropriate agency determines that there is no reasonably available 
data that permits the agency to determine the bank's statewide loan-
to-deposit ratio.
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    A bank that fails the loan-to-deposit ratio screen and that 
receives a determination that it is not reasonably helping to meet the 
credit needs of the communities served by the bank's interstate 
branches could be subject to sanctions under section 109.
    Section 106 of the Gramm-Leach-Bliley Act of 1999 (GLBA), Public 
Law 106-102, 113 Stat. 1338 (November 12, 1999), amends section 109 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)). This joint final rule conforms the Agencies' uniform regulations 
to the GLBA amendment.

II. Overview of the Comments Received

    On April 9, 2001, the Agencies published a notice of proposed 
rulemaking in the Federal Register (66 FR 18411). The Agencies received 
four comments on the proposal. Two of the comments were from trade 
associations and two were from banks.
    There were no objections to the proposed rule and three of the 
comments generally supported it. One commenter noted that the rule 
simply effectuates the amendments required by the GLBA. Another 
commenter stated that the amendment supports the efforts of community 
banks and the needs of businesses and consumers they serve.
    One commenter believed that the proposal should cover institutions 
that use brokers to market their certificates of deposit in communities 
where the institution has no intention of lending. The Agencies believe 
that such coverage goes beyond the scope of section 109 of the 
Interstate Act as amended. Thus, the Agencies have not made any changes 
from the proposal in response to this comment.
    While not objecting to the rule, one commenter raised a question 
about the definition of a bank holding company's ``home State.'' 
Section 106 of the GLBA incorporated by reference the BHC Act 
definition of ``out-of-State bank holding company.'' The proposed rule 
therefore tracked the BHC Act definition. It provided that the home 
State of a bank holding company 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 on which the company becomes a bank holding 
company. The commenter noted that because deposit levels change over 
time, using this definition to determine the home State of a bank 
holding company would lead to distortions that would become more and 
more pronounced. However, as the commenter recognized, the Agencies are 
obligated to use the Bank Holding Company Act's definition due to its 
incorporation into section 106 of the GLBA.\5\
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    \5\ The same commenter reiterated certain comments it previously 
made in the original rulemaking implementing section 109, 62 FR 
47728 (September 10, 1997). The commenter noted that the Agencies 
use Summary of Deposit Reports and Call Reports to produce the 
annual host State loan-to-deposit ratios. The commenter does not 
believe that the method used to calculate the host State loan-to-
deposit ratios is accurate. The commenter suggested that the 
Agencies should require banks to report deposits and loans by State 
and that many banks would already have this information available. 
Additionally, the commenter stated that use of the June 30th Call 
Reports to calculate ratios may understate agricultural loan volume, 
which peaks in the September 30th Call Report. The commenter 
recommended that the Agencies take the cyclical nature of 
agricultural lending into consideration when calculating these 
ratios. Both of these comments are beyond the scope of the current 
rulemaking.
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III. Analysis of the Joint Final Rule

    As discussed in the Background section, section 109 prohibits the 
use of the interstate banking and branching authority granted by the 
Interstate Act to engage in interstate branching primarily for the 
purpose of deposit production. Prior to the GLBA, this prohibition 
applied to any bank that established or acquired, directly or 
indirectly, a branch under the authority of the Interstate Act or 
amendments to any other provision of law made by the Interstate Act. In 
accordance with the amendment to section 109 adopted by the GLBA, 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. 
Thus, the final rule amends the definition of the term ``covered 
interstate branch'' to include any bank or branch of a bank controlled 
by an out-of-State bank holding company. We also have made conforming 
changes to our respective regulations \6\ to revise the definition of 
``host State'' and to clarify that the loan-to-deposit ratio screen 
will be applied to a bank, or branch of a bank, controlled by an out-
of-State bank holding company in the same manner as the screen is 
applied to a covered interstate branch. The final rule is substantively 
identical to the proposed rule. We have made only technical changes to 
each agency's proposed regulations.
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    \6\ See 12 CFR 25.62(e) and 25.63(a) (OCC); 12 CFR 208.7(b)(4) 
and 208.7(c)(1) (Federal Reserve); 12 CFR 369.2(d) and 369.3(a) 
(FDIC).
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A. Bank Locations Subject to Section 109 as Amended

    Prior to the GLBA, section 109's deposit production office 
prohibition applied only to an interstate branch in a host State that 
is acquired or

[[Page 38846]]

established by an out-of-State bank pursuant to the Interstate Act or 
any amendment made by the Interstate Act. As amended, the prohibition 
also applies to any branch of a bank controlled by an out-of-State bank 
holding company. The legislative history of this amendment indicates 
that Congress intended that this amendment would expand the scope of 
section 109 to cover any bank or branch of a bank controlled by an out-
of-State bank holding company, as discussed below.
1. Coverage of Banks' Main Offices
    Coverage of the final rule extends to banks controlled by out-of-
State bank holding companies, including banks consisting only of a main 
office. The Agencies determined that extension of the regulation to 
cover a bank's main office, whether or not the bank also has branches, 
is appropriate because the purpose of the legislation is to prevent 
out-of-State bank holding companies from taking deposits out of a 
community without helping to meet the credit needs of that community. 
See 145 Cong. Rec. H11529 (daily ed. Nov. 4, 1999); 145 Cong. Rec. 
H5217 (daily ed. July 1, 1999); 144 Cong. Rec. H3133 (daily ed. May 13, 
1998). This purpose would be negated if banks consisting only of a main 
office were excluded. For example, out-of-State bank holding companies 
could take deposits from a host State simply by establishing separately 
chartered, single-office banks in a host State. Therefore, banks 
consisting only of a main office and controlled by an out-of-State bank 
holding company are subject to the joint final rule.
2. Coverage of Interstate and Intrastate Branches
    The amendment to section 109 expands the scope of the rule to 
include all branches of a bank that is controlled by an out-of-State 
bank holding company. Indeed, Congress intended to apply the section 
109 rule to ``all branches of a bank owned by an out-of-State holding 
company,'' not just to previously exempt branches owned by such banks. 
See H.R. Rep. No. 106-74, pt. 1 at 128 (1999) (emphasis added). Thus, 
the final rule applies to all branches of a bank when the bank and its 
controlling bank holding company have different home States.

B. Multi-Tier Bank Holding Companies

    Section 106 of the GLBA expands the definition of ``interstate 
branch'' to any branch of a bank controlled by an out-of-State bank 
holding company and incorporates by reference the BHC Act definition of 
an ``out-of-State bank holding company.'' 12 U.S.C. 1841(o)(7). We have 
used the BHC Act definition of ``control'' to determine the controlling 
bank holding company. This is the top tier bank holding company in a 
multi-tier bank holding company structure.

C. Definition of ``Home State'' for a Bank Holding Company

    The BHC Act defines ``home State'' with respect to a bank holding 
company as the State where total deposits of all banking subsidiaries 
of each bank holding company are the largest on the later of July 1, 
1966 or the date on which a company becomes a bank holding company. 12 
U.S.C. 1841(o)(4). To determine the home State of a bank holding 
company, the Agencies will determine, from sources available at the 
Agencies, 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. We recognize that, in certain 
cases, the State where the total deposits of all of a bank holding 
company's subsidiary banks were largest on July 1, 1966, or at the date 
of formation of the bank holding company, may not be the same State in 
which the bank holding company's subsidiary banks hold the largest 
amount of deposits now or at a future date. However, the amendment to 
section 109 made by the GLBA adopts the BHC Act definition of ``out-of-
State bank holding company,'' and the BHC Act definition of ``home 
State'' is incorporated into that definition.

D. Foreign Banks and Branches

    Section 106 of the GLBA also necessitates an amendment to the 
definition of ``home State'' for foreign banks with banking operations 
in the United States. Under U.S. banking law and regulation, foreign 
banks may be treated as banking institutions, bank holding companies, 
or both, depending on the nature of their operations in the United 
States. 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), Sec. 211.22 of the Federal Reserve's Regulation K (12 CFR 
211.22), Sec. 28.11(o) of the OCC regulations, and Sec. 347.202(j) of 
the FDIC regulations. For purposes of determining whether a branch of a 
U.S. bank controlled by a foreign bank is a covered interstate branch, 
a foreign bank's home State is determined in accordance with 12 U.S.C. 
1841(o)(4) as discussed above in section III. C. of this preamble 
regarding U.S. bank holding companies. A foreign bank may have 
different home States with respect to direct offices and subsidiary 
banks.

E. Impact of the Rule

    The final rule is unlikely to have any impact on the vast majority 
of banks. Consistent with section 109 when it was first enacted, the 
final rule does not impose any new recordkeeping requirements on 
affected institutions. We use existing data to determine the loan-to-
deposit ratio screen.
    Moreover, there is no additional burden imposed as a result of the 
credit needs determination. In order to make that determination, the 
appropriate agency will review the activities of the bank, such as its 
lending activity and its performance under the CRA,\7\ and evaluate 
whether the bank is reasonably helping to meet the credit needs of the 
communities served by the bank in the host State.
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    \7\ Some entities that could be subject to section 109, 
including certain special purpose banks and uninsured branches of 
foreign banks, are not evaluated for CRA performance by the 
Agencies. For such entities, we will continue to use the CRA 
regulations as a guideline in making a credit needs determination. 
The CRA regulations provide only guidance to assess whether 
activities identified by these institutions help to meet the 
community's credit needs, and do not obligate these institutions to 
have a record of performance under the CRA or require that these 
institutions pass any performance tests in the CRA regulations. We 
also will continue to give substantial weight to the factor 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 their deposits from 
wholesale deposit markets, which are generally national or 
international in scope. 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 reasonably helping to meet the credit needs of the 
communities served by the bank in the host State. See Prohibition 
Against Use of Interstate Branches Primarily for Deposit Production, 
62 FR 47728, 47732-33 (September 10, 1997) (codified at 12 CFR parts 
25, 208, 211, 369).
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    The only circumstance in which the final rule would impose a burden 
on a bank is if the bank fails both the loan-to-deposit ratio screen 
and the credit needs determination. Accordingly, while the statutory 
amendment and this final rule extend the scope of the DPO rule, this 
extended scope is unlikely to affect most institutions.

IV. Regulatory Analysis

A. Paperwork Reduction Act

    The Agencies have determined that this final rule does not involve 
a collection of information pursuant to the provisions of the Paperwork 
Reduction Act, 44 U.S.C. 3501 et seq.

B. Regulatory Flexibility Act

    OCC: Pursuant to section 605(b) of the Regulatory Flexibility Act, 
the OCC

[[Page 38847]]

certifies that this final rule will not have a significant economic 
impact on a substantial number of small entities. The rule would extend 
coverage of section 109 to some additional institutions, including 
small entities. However, based on previous examination experience, we 
expect very few institutions will experience any cost in connection 
with complying with the rule. Review for compliance with section 109 is 
conducted at the same time that the Community Reinvestment Act review 
is performed. Section 109 requires that the Agencies use only available 
information to conduct their analyses. Consistent with this 
requirement, this final rule does not impose any additional paperwork 
or regulatory reporting requirements. Accordingly, we have concluded 
that the final rule would not have a significant economic impact on a 
substantial number of small entities.
    BOARD: Pursuant to section 605(b) of the Regulatory Flexibility Act 
(5 U.S.C. 601 et seq.), the Board certifies that the final rule will 
not have a significant economic impact on a substantial number of small 
entities. The rule would extend coverage of section 109 to some 
additional institutions, including small entities. Review for 
compliance with section 109 is conducted at the same time that the 
Community Reinvestment Act review is performed. Consistent with the 
requirement that the Agencies use only available information to conduct 
a section 109 review, the final rule does not impose any additional 
regulatory burden on banks beyond what is required by statute. The 
burden to conduct the review and use only available data is on the 
banking regulatory Agencies. Thus, the final rule will not have a 
significant economic impact on a substantial number of small entities.
    FDIC: Pursuant to section 605(b) of the Regulatory Flexibility Act 
(5 U.S.C. 601 et seq.), the FDIC certifies that the final rule will not 
have a significant economic impact on a substantial number of small 
entities. The rule would extend coverage of section 109 to some 
additional institutions, including small entities. However, based on 
previous examination experience, we estimate that one or fewer 
institutions per year will experience any cost in connection with 
complying with the rule. Thus, the final rule will not have a 
significant economic impact on a substantial number of small entities.

C. OCC Executive Order 12866

    The OCC has determined that its portion of the final rule is not a 
significant regulatory action under Executive Order 12866.

D. OCC Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (Unfunded Mandates Act) requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
Federal mandate that may result in expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. The OCC has determined that 
this final rule will not result in expenditures by State, local, and 
tribal governments, or by the private sector, of $100 million or more. 
Accordingly, the OCC has not prepared a budgetary impact statement or 
specifically addressed the regulatory alternatives considered.

E. The Treasury and General Government Appropriations Act, 1999--
Assessment of Impact of Federal Regulation on Families

    The FDIC has determined that this final rule will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Public Law 105-277, 112 
Stat. 2681.

F. Plain Language

    Section 722 of the GLBA (12 U.S.C. 4809) requires each federal 
banking agency to use plain language in all proposed and final rules 
published after January 1, 2000. Toward this end we have used a variety 
of ``plain language'' techniques such as topical headings, a table of 
contents, and the use of pronouns as appropriate. We specifically 
invited comments on how to make the changes proposed by this rulemaking 
easier to understand. No commenters addressed this issue. Accordingly, 
we made no changes to the proposed style or format.

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, Investments, 
Mortgages, Reporting and recordkeeping requirements, Securities.

12 CFR Part 369

    Banks, banking, Community development.

DEPARTMENT OF THE TREASURY

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 amends part 25 of chapter I of title 12 of 
the Code of Federal Regulations as follows:

PART 25--COMMUNITY REINVESTMENT ACT AND INTERSTATE DEPOSIT 
PRODUCTION REGULATIONS

    1. The authority citation for part 25 continues 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. In Sec. 25.62:
    A. Paragraphs (b), (d), and (e) are revised;
    B. Paragraphs (g) and (h) are redesignated as paragraphs (h) and 
(i), respectively; and
    C. A new paragraph (g) is added to read as follows:


Sec. 25.62  Definitions.

* * * * *
    (b) Covered interstate branch means:
    (1) Any branch of a national bank, and any Federal branch of a 
foreign bank, that:
    (i) Is established or acquired outside the bank's home State 
pursuant to the interstate branching authority granted by the 
Interstate Act or by 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)(1)(i) of this section; and
    (2) Any bank or branch of a bank controlled by an out-of-State bank 
holding company.
* * * * *
    (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;
    (3) With respect to a bank holding company, the State in which the 
total deposits of all banking subsidiaries of

[[Page 38848]]

such company are the largest on the later of:
    (i) July 1, 1966; or
    (ii) The date on which the company becomes a bank holding company 
under the Bank Holding Company Act;
    (4) With respect to a foreign bank:
    (i) For purposes of determining whether a U.S. branch of a foreign 
bank is a covered interstate branch, the home State of the foreign bank 
as determined in accordance with 12 U.S.C. 3103(c) and 12 CFR 28.11(o); 
and
    (ii) For purposes of determining whether a branch of a U.S. bank 
controlled by a foreign bank is a covered interstate branch, the State 
in which the total deposits of all banking subsidiaries of such foreign 
bank are the largest on the later of:
    (A) July 1, 1966; or
    (B) The date on which the foreign bank becomes a bank holding 
company under the Bank Holding Company Act.
    (e) Host State means a State in which a covered interstate branch 
is established or acquired.
* * * * *
    (g) Out-of-State bank holding company means, with respect to any 
State, a bank holding company whose home State is another State.
* * * * *

    3. In Sec. 25.63, paragraph (a) is revised to read as follows:


Sec. 25.63  Loan-to-deposit ratio screen.

    (a) Application of screen. Beginning no earlier than one year after 
a covered interstate branch is acquired or established, the OCC will 
consider whether the bank's statewide loan-to-deposit ratio is less 
than 50 percent of the relevant host State loan-to-deposit ratio.
* * * * *

    Dated: April 23, 2002
John D. Hawke, Jr.,
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 amends part 208 of chapter II 
of title 12 of the Code of Federal Regulations as follows:

PART 208--MEMBERSHIP OF STATE BANKING INSITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

    1. The authority citation for part 208 continues to read as 
follows:

    Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a, 
371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1823(j), 
1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1835a, 1882, 2901-
2907, 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, 42 
U.S.C. 4012a, 4104a, 4104b, 4106 and 4128.


    2. In Sec. 208.7, redesignate existing paragraphs (b)(6) and (b)(7) 
as (b)(7) and (b)(8), respectively, revise paragraphs (b)(2), (b)(3), 
(b)(4) and (c)(1), and add new paragraph (b)(6) to read as follows:


Sec. 208.7  Prohibition against use of interstate branches primarily 
for deposit production.

* * * * *
    (b) * * *
    (2) Covered interstate branch means:
    (i) Any branch of a State member bank, and any uninsured branch of 
a foreign bank licensed by a State, that:
    (A) Is established or acquired outside the bank's home State 
pursuant to the interstate branching authority granted by the 
Interstate Act or by any amendment made by the Interstate Act to any 
other provision of law; or
    (B) 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; and
    (ii) Any bank or branch of a bank controlled by an out-of-State 
bank holding company.
    (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;
    (iii) With respect to a bank holding company, the State in which 
the total deposits of all banking subsidiaries of such company are the 
largest on the later of:
    (A) July 1, 1966; or
    (B) The date on which the company becomes a bank holding company 
under the Bank Holding Company Act.
    (iv) With respect to a foreign bank:
    (A) For purposes of determining whether a U.S. branch of a foreign 
bank is a covered interstate branch, the home State of the foreign bank 
as determined in accordance with 12 U.S.C. 3103(c) and 12 CFR 211.22; 
and
    (B) For purposes of determining whether a branch of a U.S. bank 
controlled by a foreign bank is a covered interstate branch, the State 
in which the total deposits of all banking subsidiaries of such foreign 
bank are the largest on the later of:
    (1) July 1, 1966; or
    (2) The date on which the foreign bank becomes a bank holding 
company under the Bank Holding Company Act.
    (4) Host State means a State in which a covered interstate branch 
is established or acquired.
* * * * *
    (6) Out-of-State bank holding company means, with respect to any 
State, a bank holding company whose home State is another State.
* * * * *
    (c)(1) Application of screen. Beginning no earlier than one year 
after a covered interstate branch is acquired or established, the Board 
will consider whether the bank's statewide loan-to-deposit ratio is 
less than 50 percent of the relevant host State loan-to-deposit ratio.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, May 30, 2002.
Jennifer J. Johnson,
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 amends part 369 
of 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

    1. The authority citation for part 369 continues to read as 
follows:

    Authority: 12 U.S.C. 1819 (Tenth) and 1835a.


    2. In Sec. 369.2, redesignate paragraphs (f) and (g) as (g) and 
(h), respectively; revise paragraphs (b), (c) and (d); and add new 
paragraph (f) to read as follows.


Sec. 369.2  Definitions.

* * * * *
    (b) Covered interstate branch means:
    (1) Any branch of a State nonmember bank, and any insured branch of 
a foreign bank licensed by a State, that:
    (i) Is established or acquired outside the bank's home State 
pursuant to the interstate branching authority granted by the 
Interstate Act or by 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)(1)(i) of this section; and

[[Page 38849]]

    (2) Any bank or branch of a bank controlled by an out-of-State bank 
holding company.
    (c) 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;
    (3) With respect to a bank holding company, the State in which the 
total deposits of all banking subsidiaries of such company are the 
largest on the later of:
    (i) July 1, 1966; or
    (ii) The date on which the company becomes a bank holding company 
under the Bank Holding Company Act;
    (4) With respect to a foreign bank:
    (i) For purposes of determining whether a U.S. branch of a foreign 
bank is a covered interstate branch, the home State of the foreign bank 
as determined in accordance with 12 U.S.C. 3103(c) and 12 CFR 
347.202(j); and
    (ii) For purposes of determining whether a branch of a U.S. bank 
controlled by a foreign bank is a covered interstate branch, the State 
in which the total deposits of all banking subsidiaries of such foreign 
bank are the largest on the later of:
    (A) July 1, 1966; or
    (B) The date on which the foreign bank becomes a bank holding 
company under the Bank Holding Company Act.
    (d) Host State means a State in which a covered interstate branch 
is established or acquired.
* * * * *
    (f) Out-of-State bank holding company means, with respect to any 
State, a bank holding company whose home State is another State.
* * * * *

    3. In Sec. 369.3, revise paragraph (a) to read as follows:


Sec. 369.3  Loan-to-deposit ratio screen.

    (a) Application of screen. Beginning no earlier than one year after 
a covered interstate branch is acquired or established, the FDIC will 
consider whether the bank's statewide loan-to-deposit ratio is less 
than 50 percent of the relevant host State loan-to-deposit ratio.
* * * * *

    By order of the Board of Directors.

    Dated at Washington, D.C., this 1st day of March, 2002.

    Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 02-14130 Filed 6-5-02; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P