budget hearing texas department of banking testimony of: randall s. james – commissioner september...

Budget Hearing

Texas Department of BankingTestimony of:

Randall S. James – CommissionerSeptember 7, 2006

Governor’s Office of Budget, Planning and Policy and Legislative Budget

Board

Offered by:Texas Department of Banking September 7, 2006

Budget Hearing

Statutory Mandates

The Department of Banking is entrusted with insuring the safety of the public’s money held by institutions that provide financial services. We charter and/or license the following businesses:

Chapter 31 of the Texas Finance Code requires the Banking Commissioner to examine each state bank annually or more often as the Banking Commissioner considers necessary to safeguard the interest of depositors, creditors, shareholders, participants and participant-transferees.

Chapter 204 of the Texas Finance Code requires the Banking Commissioner to examine each Texas state branch, agency or representative office of a foreign bank annually or more often as the Banking Commissioner considers necessary to determine if the office is operated in a safe and sound manner.

Chapter 181 of the Texas Finance Code requires the Banking Commissioner to examine each state trust company annually or more often as the Banking Commissioner considers necessary to safeguard the interest of clients, creditors, shareholders, participants and participant-transferees.

Banks, Trust Companies and Offices of Foreign Bank Agencies


Budget Hearing

Prepaid Funeral Contract Sellers, Perpetual Care Cemeteries, Money Service Businesses, and Private Child Support Enforcement Agencies

Chapter 154 of the Texas Finance Code requires that the Banking Commissioner examine each prepaid funeral contract seller annually or more often as deemed necessary to protect the prepaid funds and to assure that the contracted services and merchandise are provided at the time of death.

Chapter 712 of the Texas Health and Safety Code requires that the Banking Commissioner examine each perpetual care cemetery annually or more often as deemed necessary to protect and safeguard the perpetual care trust funds and to assure that the fund income is used to maintain and support cemetery maintenance.

Chapter 151 of the Texas Finance Code (Money Services Act) requires that the Banking Commissioner examine each money service business (currency exchange, transportation, transmission, stored value cards, and third party bill payers) annually to protect and safeguard customer funds and prevent money laundering and funding of terrorist activities.

Chapter 396 of the Texas Finance Code requires the Banking Commissioner to monitor private child support enforcement agencies through registration and investigation of consumer complaints.

Statutory Mandates


Budget Hearing

Source: FDIC, NCUA and Texas Credit Union Department. Produced by: Texas Department of Banking. For additional information, contact Kurt Purdom at (512) 475-1333.

Assets of Federally-Insured Financial Institutions Operating in Texas

Texas Federally-Chartered Credit

Unions $30.2 Billion

6%

Out-of-State Federally-Chartered Savings

Institutions $9.8 Billion

2%

Texas State-Chartered Banks

$76.7 Billion 16%

Texas State-Chartered Savings Institutions

$8.7 Billion 2%

Texas Federally-Chartered Savings

Institutions $55.8 Billion

12%

Out-of-State Nationally-Chartered Banks

$168.2 Billion 35%

Out-of-State State-Chartered Banks

$12.7 Billion 3%

Texas Nationally-Chartered Banks

$96.5 Billion 20%

Texas State-Chartered Credit Unions $17.6 Billion

4%

Assets of All Institutions: $476.2 Billion


Budget Hearing

Profile of Regulated Entities

Information as of December 2005.* Does not include 17 out-of-state, state-chartered banks operating in Texas ($12,736 million).

Regulated Entity Number of EntitiesTotal Assets$(millions)

Commercial Banks* 324 $76,686

Foreign Bank Agencies 7 22,784

Public Trust Companies 24 24,696

Prepaid Funeral Licensees 424 2,705

Perpetual Care Cemeteries 240 186

Money Service Businesses 133 65,182

Private Child Support Enforcement Agencies

14 N/A

Totals 1,166 $192,239


Budget Hearing

Supervisory Information

The total number of state-chartered banking organizations has declined.

Most of this reduction is the result of merger activity. As a result, the surviving banks are substantially larger in size and operate many more branch locations. As the size of the organization increases, so does the complexity of its operations. Larger banks engage in more sophisticated investment ventures and provide a greater variety of products and services to their customers.

Even though the number of banking organizations has decreased, the assets and branches have increased, and agency resources needed to appropriately supervise these businesses have not diminished. Larger and more complex banks also necessitate a better trained and experienced staff of examiners, including more subject matter specialists, to review their operations.

BANK

INFORMATION 12-31-90 12-31-05Percent

Increase / (Decrease)

Number of Texas State-Chartered Banks [1]

577 324 (44%)

Number of Branches of Texas State-Chartered Banks

467 1,288 176%

Total Assets of Texas State-Chartered Banks

$45 billion $77 billion 71%

Average Assets Per Bank $78 million $238 million 205%

STAFFING INFORMATION 8-31-90 8-31-06

Percent Increase / (Decrease)

Total Agency Staffing 210 158 (25%)

Number of Financial Examiners [2] 140 98 (30%)

[1] Does not include out-of-state chartered banks operating in Texas.[2] Includes Bank and Trust field examiners and related directors.


Budget Hearing

Department Staffing by Strategy

STRATEGY STAFFING LEVELS [1]Financial Examiners,

Program Administrators and Related Directors

Other Total

Bank Examination 98 8 106

Non-Bank Examination 16 2 18

Application Processing 4 2 6

Administration 27 27

Regulatory Oversight 1 1

TOTALS 118 40 158

TURNOVER

Fiscal Year 2006 14.0% 19.0% 15.8%

Fiscal Year 2005 21.2% 16.3% 20.9%

Fiscal Year 2004 12.0% 22.5% 14.4%

Fiscal Year 2003 8.8% 14.3% 10.2%

Fiscal Year 2002 12.0% 22.5% 14.1%

Fiscal Year 2001 21.7% 20.0% 21.0%

[1] Represents actual staffing as of 8-31-06.


Budget Hearing

Revenue Sources

The Department is fully self-funded and fully self-leveling.Fees and assessments on regulated entities fund 100% of the agency’s expenditures.

Expenditure reductions will not benefit the state’s General Revenue Fund.

By statute, the Department of Banking is limited to collecting fees and assessments that cover only the agency’s direct and indirect expenditures related to bank supervision (Chapter 31.106 of the Texas Finance Code).

The Department’s expenditures are mainly personnel related. Salaries and other personnel expenses average 80% of total expenditures.

Travel related expenses, mainly to conduct examinations, are 10% of total expenditures.

Primary Expenses


Budget Hearing

Summary of L.A.R. for FY 2008 and 2009Texas Department of Banking

Total requested funding with the 10% reduction is $11,228,927 for fiscal year 2008 and $11,153,925 for fiscal year 2009.

Exceptional Items Requested for Fiscal Years 2008 and 2009 Amount for

Each FY

Restore 10% Mandatory Reduction $938,673

$938,672

With the mandatory 10% reduction, funding for 17 examiner positions is eliminated and the agency would be required to drop to a critical staffing level and meeting bank examination priorities would not be possible. Additional supervisory efforts regarding corporate governance, Bank Secrecy Act compliance, holding company and information systems supervision would be jeopardized.

Continue the Regulator Response Contingency Rider

$5,550,432

$5,550,432

This rider is needed to provide a mechanism to request additional appropriations if certain events occur in the banking industry. It allows the agency to respond to a growth in banking assets, a shift in federal regulatory priorities, or a disparity in examiners’ pay compared to their federal counterparts.

Lump Sum Leave Payments to Retirees $219,000

$62,000

Provides funding for lump sum vacation accrual payments to employees who retire and opt for lump sum payments of leave benefits. Without this rider, the agency will be required to defer promotions and/or hiring of new employees to fill vacant positions left by the retirees.

Restore Funds for Finance Commission Study Eliminated by 10% Mandatory Reduction

$100,000

$100,000

Data gathered from Finance Commission studies provides valuable information to the Legislature and other financial service industries about lending in Texas and historical trends. This study is eliminated in the 10% reduction.


Budget Hearing


Newly Requested Riders for Fiscal Years 2008 and 2009 Amount for

Each FY

Out-of-State Travel From Funds Already Appropriated

Travel related to regulatory matters, including examinations, inspections and training of examiners, inspectors, investigators, attorneys and related directors is exempt from any out-of-state cap limitations. This rider allows the agency the flexibility to continue its mission without a break in activities while an exception is being reviewed. Annual waivers have been received by the Department each year requested beginning in fiscal year 2004. This rider is patterned after a State Securities Board rider.

Appropriation of Unexpended Balances within the Biennium

From Funds Already Appropriated

Unobligated and unexpended balances of appropriations to the agency for the fiscal year ending 8-31-08, are appropriated to the Department for the same purposes for the fiscal year beginning 9-1-08. This rider, which is pattered after a State Securities Board rider, will allow greater flexibility to the agency during the biennium.

Overnight Travel Stipend From Funds Already Appropriated

Employees of the agency when traveling on examination assignments relating to the agency’s regulatory responsibilities may be authorized to receive an overnight stipend for all overnight stays in excess of 60 days out per fiscal year. This stipend will be paid annually in August and the daily rate may not exceed the rate set by the FDIC. This stipend will not be considered a one time merit and may be paid to the eligible employees regardless of their last merit pay or promotion action.


Budget Hearing


Amount for Each FY

Continue the Regulator Response Contingency Rider

From Funds Already Appropriated

None of the funds in the Department’s contingency rider may be expended unless the Finance Commission files a finding of fact with the Governor and LBB and neither the Governor nor LBB issues a written disapproval within 30 day of the receipt of the finding of fact. This revision provides a date certain that the agency will receive either approval or denial of a request to activate the contingency rider.

Revised Riders for Fiscal Years 2008 and 2009

Deleted Riders for Fiscal Years 2008 and 2009 Amount for

Each FY

Sharing of Receptionist -0-

-0-

The rider establishing the intent of the Legislature that the Department and other two Finance Commission agencies share one full time receptionist. This rider is deleted since it is no longer necessary.

Spending for fiscal years 2006-2007 is expected to be within appropriated amounts. We are on target to achieve five of eight key performance measures in FY 06. Also in FY 06, we received a waiver to exceed our out-of-state travel cap to perform examinations and attend core training. We will also be requesting this waiver for FY 07.

Fiscal Years 2006-2007 Update

budget hearing texas department of banking testimony of: randall s. james – commissioner september...

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