House Committee on Pensions, Investments

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House Committee on Pensions, Investments
Financial Service
Legislative Briefing
Texas Department of Banking Banking Commissioner
Charles G. Cooper March 4, 2009
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Department Oversight

• 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.
• Regulatory oversight in the banking and other
  financial services industries is countercyclical,
  and during times of economic stress additional
  resources are needed for vigilance, off-site
  monitoring, and onsite supervision.
• Continuous development of examination skills is
  crucial to the agencys ability to respond to
  rapid fluctuations in the financial services
  industry.

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Statutory Mandates

• 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 on another periodic basis 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-transfe
  rees.
• 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.

Offered by Texas Department of Banking March 2009
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Statutory Mandates Continued

• 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.

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Profile of Regulated Entities
Regulated Entity Number of Entities Total Assets (billions)
Commercial Banks 327 165
Foreign Bank Agencies 10 57
Public Trust Companies 21 27
Prepaid Funeral Licensees 412 3
Perpetual Care Cemeteries 243 0
Money Service Businesses 124 75
Private Child Support Enforcement Agencies 12 N/A
Check Verification Entities 6 N/A
Totals 1,155 327
Information as of December 2008. Does not
include 23 out-of-state, state-chartered banks
operating in Texas (28,108 million)
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Federally Insured Depository Institutions Assets
Under Supervision in Texas725.2 Billion
Offered by Texas Department of Banking March 2009
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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 12-31-03 12-31-08 Percent Increase / (Decrease)
Number of Texas State-Chartered Banks 1 337 327 (3)
Number of Branches of Texas State-Chartered Banks 1,018 1,978 94
Total Assets of Texas State-Chartered Banks 61 billion 165 billion 170
Average Assets Per Bank 181 million 505 million 179
STAFFING INFORMATION 12-31-03 12-31-08 Percent Increase / (Decrease)
Total Authorized FTEs 159 180 13
Total Authorized Financial Examiners 2 86 104 21
1 Does not include out-of-state,
state-chartered banks operating in Texas. 2
Includes Bank and Trust field examiners and
related directors.
Offered by Texas Department of Banking March 2009
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Issues Affecting the Agency

• Bank and Trust Supervision -
• Turmoil in the Financial Sector
• The Texas economy has been resilient, however, we
  are starting to feel the effects of the national
  economic slowdown that has developed into a
  global financial crisis.
• Leading economic indicators reflect that the
  financial stagnation will not be as severe in
  Texas as in other states. But, we are mindful of
  the deteriorating national economic conditions
  and the impact it has on our communities.
• To ensure Texas has a safe, sound and competitive
  financial services system, the Department has
  increased supervision of our regulated financial
  institutions.

• Results of Turmoil Problem Banks
• Regulatory oversight in the banking industry is
  countercyclical, and during times of economic
  stress there is an increased need for
  supervision.
• Problem banks require experienced examiners that
  can adequately identify excessive risks like weak
  lending practices that may further deteriorate an
  institutions financial condition.
• Problem banks receive more frequent examinations,
  usually every six months.
• Problem banks increase the number of examination
  hours by approximately 56 due to the expanded
  work procedures in high risk areas.
• Problem banks require continuous monitoring for
  compliance with administrative and enforcement
  actions.

Offered by Texas Department of Banking March 2009
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Issues Affecting the Agency
Special Audits - (Prepaid Funeral Contract
Providers, Perpetual Care Cemeteries, and Money
Services Businesses)

• Evolving methods of transferring funds.
• Identifying and prosecuting unlicensed
  activities.
• Industry investments into riskier instruments.
• Money service business bonding is becoming
  increasingly more difficult to acquire.
• Compliance with anti-money laundering laws,
  including the Bank Secrecy Act.

Offered by Texas Department of Banking March 2009
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Proposed Legislation

• Major Proposed Changes to Finance Code Chapter
  154 based on House Committee on Financial
  Institutions interim study.
• Prepaid Funeral Contract Benefits
• Adds new licensing requirements to enhance the
  viability and sustainability of the licensees
  business over the longer term. Sale of a prepaid
  funeral contract creates a continuing duty for
  the seller that can extend 10 years into the
  future or more.
• Expands coverage of the prepaid funeral contract
  guaranty fund to insurance-funded contracts to
  address costs not covered by the insurance
  guaranty association.
• Recognizes the responsibility of the funeral
  provider to protect nonpublic personal financial
  and health information, perform the contracted
  funeral, maintain appropriate records, and make
  the record available to the licensee and the
  Department.
• Expands required disclosures to potential
  purchasers.
• Adds insurance policy disclosure requirements.
• Allows non-guaranteed cash advance items to be
  included in prepaid funeral contracts.
• Enhances enforcement authority to permit
  immediate action in an emergency.

Offered by Texas Department of Banking March 2009
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Agency Staffing By Strategy
STRATEGY STAFFING LEVELS 1 Financial Examiners, Program Administrators and Related Directors Other Total
Bank Examination 101 8 109
Comerica Bank Examination 11 2 13
Non-Bank Examination 15 4 19
Application Processing 5 2 7
Administration   25 25
Regulatory Oversight   1 1
TOTALS 132 42 174
TURNOVER 2      
Fiscal Year 2008 10.9 22.5 13.6
Fiscal Year 2007 9.4 14.6 10.8
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 2/1//09. 2
Including interagency transfers.
Offered by Texas Department of Banking March 2009
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