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									Senate Finance Committee

    Fiscal 2004-2005
     Budget Hearing

           Testimony of:
         Randall S. James
     Banking Commissioner
   Texas Department of Banking
         February 12, 2003
                              Department’s Revenue Sources
The Department is fully self-funded, or “Revenue Neutral” to the General
 Revenue Fund.
        Fees and assessments on regulated entities fund 99.6% of the agency’s expenditures, with
         $58,000 in federal grants covering the remainder.
        Expenditure reductions will not benefit the state’s General Revenue Fund.
        By statute, the Finance Commission is limited to collecting fees and assessments that cover
         only the agency’s direct and indirect expenditures related to supervision.

                    Budget Cuts Reduce Bank Supervision
The Department’s expenditures are mainly personnel related.
      Salaries and other personnel expenses are 82% of total expenditures.
      Contingency rider #3 that was funded for new examiners in 2003 was significantly under funded in
       2004 and 2005.
      Travel related expenses, mainly to conduct examinations, are 9.5% of total expenditures.

Offered by:                               Senate Finance Committee                                 Page   2
Texas Department of Banking
February 12, 2003
                   Immediate Effect of Appropriation Cuts
    Reduces the size, quality, and experience of staff considerably.
    Prevents adequate supervision and regulation of our regulated financial institutions.
    Slows approval process of industry filings.
    Reduces our responsiveness to consumer complaints and industry issues.
    Eliminates use of federally subsidized training programs.
    Significantly reduces the recently approved increase in examiners – a planned
     “regulatory response” to the current period of economic stress.

                   Continuing Effect of Appropriation Cuts
 Delayed examinations and monitoring will prevent the Department from meeting
  alternating examination agreements with federal regulators.
 Federal oversight of state banks will dominate regulatory decisions.
 Staff turnover will significantly increase, and staff experience will decline.
 Attractiveness of state bank charter will significantly decrease.
 State impact on banking in Texas will decline.
Offered by:                          Senate Finance Committee                          Page   3
Texas Department of Banking
February 12, 2003
          A Sound Financial System is Important to Texas
 Texas citizens and Texas business owners need the state’s assurance that –
       Their money is safe and secure;
       Their financial affairs are being handled honestly and fairly;
       Their personal information is being properly safeguarded; and
       Their bank complies with the law.
 Public confidence creates economic opportunities –
       Consumer spending increases for goods and services;
       New investments are made in stocks, bonds, and real property; and
       Increases in business activity lead to new employment opportunities.
 Well managed financial institutions are capable of extending loans and other
  forms of credit to facilitate business growth and consumer purchases.
       State-chartered banks are a primary source of credit for small businesses, which employ most of
        the working population in Texas.
 Effective regulation reduces instances of consumer fraud, money laundering,
  and other financial improprieties.
       A continuing regulatory presence, coordinated with law enforcement and other regulatory
        agencies, is needed to protect Texas citizens.

Offered by:                               Senate Finance Committee                                Page   4
Texas Department of Banking
February 12, 2003
                          Effective Regulation is Important

 Now is not the time to reduce regulatory oversight due to economic
 Effective regulation promotes strong and healthy institutions based in Texas
  that can offer financial leadership and guidance that best benefits Texas.
 Prevents unnecessary or unabated deterioration in the state’s financial service
 Economic prosperity fosters competitive markets, which benefits all Texans.

Offered by:                         Senate Finance Committee                Page   5
Texas Department of Banking
February 12, 2003

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