Budget Hearing

1
Budget Hearing
Senate Finance Committee

• Texas Department of Banking
• Testimony of
• Randall S. James Commissioner
• September 13, 2004

2
Statutory Mandates

• The Department of Banking is entrusted with
  insuring the safety of the publics money held by
  institutions that provide financial services. We
  charter and/or license the following businesses
• Banks

• 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.

• Trust Companies

• 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-transfe
  rees.

• Offices of Foreign Bank Agencies

• 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.

3
Statutory Mandates

• Prepaid Funeral Contract Sellers, Perpetual Care
  Cemeteries, Currency Exchange Businesses, Sale of
  Check Licensees, 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 153 of the Texas Finance Code requires
  that the Banking Commissioner examine each
  currency exchange, transportation and
  transmission licensee annually to protect and
  safeguard customer funds and prevent money
  laundering and funding of terrorist activities.
• Chapter 152 of the Texas Finance Code requires
  that the Banking Commissioner examine each sale
  of check licensee annually or more often as
  deemed necessary 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.

4
Profile of Regulated Entities
5
Department Staffing by Strategy
STRATEGY STAFFING LEVELS (1) Financial Examiners, Program Administrators and Related Directors Other Total
Bank Examination 97 8 105
Non-Bank Examination 16 3 19
Application Processing 4 2 6
Administration 27 27
Regulatory Oversight 1 1
TOTALS 117 41 158
TURNOVER
Fiscal YTD 2004 (As of 7-31-04) 9.8 23.2 13.3
Fiscal Year 2003 8.7 14.9 10.5
Fiscal Year 2002 11.2 20.0 14.6
Fiscal Year 2001 21.7 20.0 21.0
(1) Represents actual staffing as of 7-31-04.
6
Revenue Sources

• The Department is fully self-funded and fully
  self-leveling.
• Fees and assessments on regulated entities fund
  99.6 of the agencys expenditures, with 58,000
  in federal grants covering the remainder.
• Expenditure reductions will not benefit the
  states General Revenue Fund.
• By statute, the Department of Banking is limited
  to collecting fees and assessments that cover
  only the agencys direct and indirect
  expenditures related to bank supervision (See
  Chapter 31.106 of the Texas Finance Code).

Primary Expenses

• The Departments expenditures are mainly
  personnel related.
• Salaries and other personnel expenses average 80
  of total expenditures.
• Travel related expenses, mainly to conduct
  examinations, are 9 of total expenditures.

7
Summary of L.A.R. for FY 2006 and 2007Texas
Department of Banking
Agency Funding at the 95 Target Level
2006 2007
Total Requested for Fiscal Year 11,200,124 10,731,988
Exceptional Items Requested for Fiscal Years 2006
and 2007
Amount for Each FY
Restore 5 Reduction 459,916 459,916 A portion of the 5 reduction eliminates nine examiner positions. The elimination of financial examiners will dramatically affect the agencys ability to meet its statutory mandates and address new areas of concern.
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.
Increase the Bank Examination Staff by Seven 585,540 568,040 Additional staffing is needed to address emerging areas of concern including Bank Secrecy Act compliance, corporate governance, and expanding information technology.
Add one Consumer Assistance Employee 30,122 28,775 One additional employee is needed to handle the increased number of consumer assistance calls and maintain the current level of service.
Restore 5 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 5 reduction.
Fiscal Years 2004-2005 Update
Spending for fiscal years 2004-2005 is expected to be within appropriated amounts. We are on target to achieve eight of nine key performance measures in FY 04. Also in FY 04, we received a waiver to exceed our out-of-state travel cap to perform examinations and attend core training.
8
Delegated Authority for Financial Regulator

• The Finance Commission discussed and approved a
  resolution at its Board meeting on August 20,
  2004, directing the Finance Commission Agencies
  to seek self-directed status, including removal
  from the appropriations process in the 2005
  Legislative session.

• Factors that influenced adoption of this
  resolution
• The Department of Banking is fully self-funding
  and fully self-leveling. The agency neither
  provides to, nor takes funds from the General
  Revenue Fund.
• A delegated operational status allows greater
  flexibility to regulate the entire finance
  industry and to respond to changing economic
  conditions, which reduces the systemic risk
  within the industry and protects the public.
• The Department of Banking remains accountable to
  the Finance Commission and Legislative Committee
  oversight and subject to audit by the State
  Auditors Office and Comptrollers Office.
• Removing statutory restrictions on administrative
  flexibility can save costs and improve efficiency
  and productivity.
• Human resource functions can be more effectively
  and efficiently managed, which in turn helps the
  Department preserve human resources by
  controlling employee turnover and retaining
  experienced personnel.
• Delegated authority in operationally
  administrative areas would include the Finance
  Commission building, employee levels, employee
  compensation, and out-of-state travel.