Budget Hearing

1. Governor’s Office of Budget, Planning and Policy and Legislative Budget Board Budget Hearing Texas Department of Banking Testimony of: Randall S. James – Commissioner September 7, 2006

2. 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. Budget Hearing

3. Statutory Mandates • 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. Budget Hearing

4. Budget Hearing

5. Profile of Regulated Entities Information as of December 2005. * Does not include 17 out-of-state, state-chartered banks operating in Texas ($12,736 million). Budget Hearing

6. 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. • [1] Does not include out-of-state chartered banks operating in Texas. • [2] Includes Bank and Trust field examiners and related directors. Budget Hearing

7. Department Staffing by Strategy [1] Represents actual staffing as of 8-31-06. Budget Hearing

8. 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 (Chapter 31.106 of the Texas Finance Code). 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, are 10% of total expenditures. Budget Hearing

9. Summary of L.A.R. for FY 2008 and 2009Texas Department of Banking Total requested funding with the 10% reduction is $11,228,927 for fiscal year 2008 and $11,153,925 for fiscal year 2009. Exceptional Items Requested for Fiscal Years 2008 and 2009 Budget Hearing

10. Summary of L.A.R. for FY 2008 and 2009Texas Department of Banking Newly Requested Riders for Fiscal Years 2008 and 2009 Budget Hearing

11. Summary of L.A.R. for FY 2008 and 2009Texas Department of Banking Revised Riders for Fiscal Years 2008 and 2009 Deleted Riders for Fiscal Years 2008 and 2009 Fiscal Years 2006-2007 Update Spending for fiscal years 2006-2007 is expected to be within appropriated amounts. We are on target to achieve five of eight key performance measures in FY 06. Also in FY 06, we received a waiver to exceed our out-of-state travel cap to perform examinations and attend core training. We will also be requesting this waiver for FY 07. Budget Hearing