Small banks want the government to impose stricter data reporting requirements on out-of-state branches to prevent them from draining deposits from local communities.
The federal banking agencies in March proposed requiring banks that branch across state lines to maintain a loan-to-deposit ratio equal to half the average of all banks based in the state. The 1994 interstate banking law mandated a rule be in place by June 1, when full-scale interstate branching will begin in most states.
The Independent Bankers Association of America, which mainly represents small banks, wants institutions that branch across state lines to track and report their loans and deposits by state, geographic area, or branch, according to a comment letter filed this week.
IBAA told the agencies to raise the 50% threshold to 80%.
Large banks object, however, arguing that the 1994 interstate banking law prevents regulators from imposing additional data reporting burdens on them.
The disagreement underscores the clash between community banks and national banks over interstate branching. Facing stiff competition, small banks claim out-of-state branches will abuse the law by funneling excessive amounts of local deposits into loans in other states.
Under the proposal, if a bank's out-of-state branches fall below 50% of the state loan-to-deposit average after a year of operation, regulators would investigate further and could close the branches or prevent that bank from opening new branches in that state.
"We believe that this regulation would impose a completely unnecessary additional layer of regulation on a heavily regulated industry," wrote Steven I. Zeisel, senior counsel at the Consumer Bankers Association. "The Community Reinvestment Act already requires bank regulatory agencies to examine banks to determine their effectiveness in meeting community credit needs."
However, accurately computing loan-to-deposit ratios from call reports and other existing public sources is easier said than done. For efficiency, banks often consolidate credit card and consumer loans regionally and nationally. And depositors may not live near the branch where they deposit their funds.
Regulators are in a Catch-22 because the interstate banking law expressly forbids them from imposing new reporting requirements to compensate for data deficiencies, several large bank trade groups said. The IBAA and others disagreed that more data would be so difficult to collect.
"Reliance on data obtained from existing sources would be an evasion of the agencies' duties under the statutes," wrote Richard W. Berglund, executive vice president of the Iowa Independent Bankers. "There simply is no credible basis for arguing that Congress intended that the regulatory agencies should, would, or could rely on existing record keeping and reporting requirements."