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

Board

Budget Hearing

Texas Department of BankingTestimony of:

Robert L. Bacon – Interim CommissionerSeptember 2008

Department Overview

Offered by: Texas Department of Banking September 2008

Budget Hearing2

Established in 1905 by the 29th Legislature.Rich tradition of professional and sound

regulation.Practices and promotes fiscal responsibility.Reduces regulatory burden by coordinating

regulatory activities with other state and federal agencies.

Our mission is to ensure Texas has a safe, sound and competitive financial services system.

Statutory Mandates


Budget Hearing3

Banks, Trust Companies, Foreign Bank Agencies and Check Verification Companies:

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 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.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.Section 11.309 of the Texas Finance Code requires the Banking Commissioner to register check verification entities and operate a secure electronic system to facilitate notification of closed bank accounts subject to fraud.

Statutory Mandates … Continued


Budget Hearing4

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.

Assets Under Supervision in Texas


Budget Hearing5

Add pie graph

Texas Federally-Chartered Credit Unions

$32.3 Billion 5%

Out-of-State Federally-Chartered Savings

Institutions $75.0 Billion

11%

Texas State-Chartered Banks

$154.3 Billion 24%

Texas State-Chartered Savings Institutions

$10.0 Billion 2%

Texas Federally-Chartered Savings

Institutions $74.3 Billion

11%

Out-of-State Nationally-Chartered Banks

$165.1 Billion 25%

Out-of-State State-Chartered Banks

$15.2 Billion 2%

Texas Nationally-Chartered Banks

$107.3 Billion 16%

Texas State-Chartered Credit Unions $19.0 Billion

3%

Assets of All Institutions: $652.5 Billion

Profile of Regulated Entities


Budget Hearing6

Information as of March 2008.

* Does not include 18 out-of-state, state-chartered banks operating in Texas ($21,230 million)

Regulated Entity Number of EntitiesTotal Assets$(billions)

Commercial Banks* 328 $154

Foreign Bank Agencies 8 $ 53

Public Trust Companies 21 $ 29

Prepaid Funeral Licensees 413 $ 3

Perpetual Care Cemeteries 242 $ 0

Money Service Businesses 131 $ 74

Private Child Support Enforcement Agencies 14 N/A

Check Verification Entities 6 N/A

Totals 1,156 $312

Department Staffing by Strategy

7 Budget Hearing Offered by: Texas Department of Banking September 2008

STRATEGY STAFFING LEVELS [1]

Financial Examiners, Program

Administrators and Related Directors

Other Total

Bank Examination 99 8 107

Comerica Bank Examination 8 2 10

Non-Bank Examination 15 3 18

Application Processing 5 2 7

Administration 24 24

Regulatory Oversight 1 1

TOTALS 127 40 167

TURNOVER

Fiscal Year 2008 10.9% 22.5% 13.8%

Fiscal Year 2007 9.4% 14.6% 10.8%

Fiscal Year 2006 14.0% 19.0% 15.1%

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 8/31/08.

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.

Primary Expenses

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, average 11% of total expenditures.


Summary of L.A.R. for FY 2010 and 2011Texas Department of Banking


Revised Rider Comments

Contingency Appropriations – State Regulatory Response

Amendments to rider:

(1) Allow the agency the ability to seek examiner salary adjustments if salary levels are not competitive with the FDIC;

(2) Make interim salary adjustments a component of future base appropriation requests; and

(3) Assign a unique pay code to these type of salary adjustments.

Exceptional Items Requested for FY 2010 and 2011 Texas Department of Banking


Exceptional ItemsAmount for

Each FYComments

Continue Funding of Interim Contingency Rider Appropriations

$2,502,819

$2,545,119

Provides continued funding for the 2008 interim appropriations received for the oversight of Comerica Bank and examiner and related directors market salary adjustments. Without the continuation of the appropriations, the agency will be unable to adequately regulate Comerica Bank and examiners will likely leave if salary adjustments are taken back.

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.

Career Path Promotions for Financial Examiners

$282,231$562,259

Provides funding for promotions in the financial examiner series. Career path promotions based on performance will enable the agency to demonstrate that state service can be a viable long term career thus curbing turnover.

Commissioner Salary Increase

$28,809$28,809

Provides a salary increase for the Commissioner to $165,000 annually to align the position’s salary to market competition.

governor’s office of budget, planning and policy and legislative budget board budget hearing texas...

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