Legislative Briefing

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					House Financial Institutions Committee


         Legislative Briefing

     Texas Department of Banking
                 Testimony of:
       Randall S. James – Commissioner
               February 12, 2007
                                  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:

       Banks, Trust Companies and Offices of Foreign Bank Agencies

               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.

Offered by:                                  Legislative Briefing                               Page   2
Texas Department of Banking
February 12, 2007
                              Statutory Mandates (cont.)
        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.




Offered by:                                    Legislative Briefing                                   Page   3
Texas Department of Banking
February 12, 2007
                              Profile of Regulated Entities

                                                                                       Total Assets
Regulated Entity                                Number of Entities                      $(billions)

Commercial Banks*                                               321                            $80
Foreign Bank Agencies                                                 7                         23

Public Trust Companies                                            22                            27
Prepaid Funeral Licensees                                       419                              3
Perpetual Care Cemeteries                                       241                              0
Money Service Businesses                                        123                             66
Private Child Support Enforcement                                 14                           N/A
Agencies


                   Totals                                   1,147                             $199
Information as of September 2006.
* Does not include 17 out-of-state, state-chartered banks operating in Texas ($16 billion).
Offered by:                                    Legislative Briefing                                   Page   4
Texas Department of Banking
February 12, 2007
                    Assets of Federally-Insured Financial Institutions
                                  Operating in Texas
                                                                             Texas State-Chartered
       Assets of All         Out-of-State Federally-                                Banks          Texas State-Chartered
       Institutions:          Chartered Savings                                   $80 Billion       Savings Institutions
       $520 Billion                Institutions                                       15%               $9.3 Billion
                                   $9.8 Billion                                                             2%
                                        2%

                                                                                                           Texas State-Chartered
      Out-of-State Nationally-                                                                                 Credit Unions
         Chartered Banks                                                                                       $17.9 Billion
           $194.4 Billion                                                                                           3%
                37%
                                                                                                          Texas Nationally-
                                                                                                          Chartered Banks
            Out-of-State State-                                                                             $99.4 Billion
             Chartered Banks                                                                                    19%
               $16.3 Billion
                    3%
                                                                                                            Texas Federally-
                                                                                                           Chartered Savings
              Texas Federally-                                                                                 Institutions
              Chartered Credit                                                                                $62.6 Billion
                  Unions                                                                                           12%
                $30.2 Billion
                     6%

 Source: FDIC, NCUA and Texas Credit Union Department. Asset figures are as of 6-30-06, except for Texas State-chartered banks (9-30-06)
 and Texas National Credit Unions (12-31-05). Produced by: Texas Department of Banking. For additional information, contact Kurt Purdom at
 (512) 475-1333.
Offered by:                                                 Legislative Briefing                                                     Page    5
Texas Department of Banking
February 12, 2007
                                  Supervisory Information

The total number of state-chartered banking           BANK                                                                    Percent
organizations has declined.                                                           12-31-90            9-30-06            Increase /
                                                      INFORMATION                                                           (Decrease)
Most of this reduction is the result of merger
                                                      Number of Texas
activity. As a result, the surviving banks are        State-Chartered                    577                 321              (44%)
substantially larger in size and operate many         Banks [1]
more branch locations. As the size of the
                                                      Number of Branches
organization increases, so does the complexity
                                                      of Texas State-                    467                1,318             182%
of its operations. Larger banks engage in more        Chartered Banks
sophisticated investment ventures and provide a
greater variety of products and services to their     Total Assets of Texas
                                                      State-Chartered                $45 billion        $80 billion            78%
customers.                                            Banks
Even though the number of banking                     Average Assets Per
organizations has decreased, the assets and           Bank                          $78 million        $249 million           219%
branches have increased, and agency resources
                                                      STAFFING                                                                Percent
needed to appropriately supervise these                                                8-31-90            9-30-06            Increase /
businesses have not diminished. Larger and            INFORMATION
                                                                                                                            (Decrease)
more complex banks also necessitate a better
trained and experienced staff of examiners,           Total Agency Staffing              210                 157              (25%)
including more subject matter specialists, to
review their operations.                              Number of Financial
                                                      Examiners [2]                      140                  96              (31%)

                                                    [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:                                        Legislative Briefing                                                           Page   6
 Texas Department of Banking
 February 12, 2007
                      Industry Issues Affecting the Agency
 Entity supervision continues to increase in scope and complexity.

 Bank and Trust Supervision – Increased supervision is occurring in: (i) anti-terrorist and
  money laundering detection; (ii) strengthening corporate governance practices; (iii) credit
  underwriting; and (iv) interest rate risk analysis. Other factors that influence the level of
  required supervisory resources include:

        Increased competition resulting from branch expansion, mergers and acquisitions, de novo
         charters, and non-bank activities.

        Evolution of the industry into a greater diversity of financial products.

        Protection of consumer interests and privacy and preventing identity theft and abusive
         practices.

        Advancements in technology.

        Positive economic indicators.


Offered by:                                  Legislative Briefing                          Page   7
Texas Department of Banking
February 12, 2007
              Industry Issues Affecting the Agency (cont.)
 Special Audits – (Prepaid Funeral Contract Providers, Perpetual Care Cemeteries, and
  Money Service 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.

        Migration of prepaid trust contracts to insurance funded arrangements.




Offered by:                                 Legislative Briefing                              Page   8
Texas Department of Banking
February 12, 2007
                              Proposed Legislation


 Improvements to the Texas Finance Code – Proposed bill to:


      Improved Regulatory Oversight;


      Enhanced Corporate Application Process; and

      Correct technical errors.




Offered by:                             Legislative Briefing   Page   9
Texas Department of Banking
February 12, 2007
                              Proposed Legislation (cont.)
 The Department stands ready to act as a resource outlet to state leadership on these other
  issues expected to be considered this legislative session.

        Banking issues

        Identity theft

        Preemption of state law by federal authorities

        Usury

        Wire transfer fees




Offered by:                                Legislative Briefing                        Page   10
Texas Department of Banking
February 12, 2007