House Appropriations Subcommittee on Business and Economic Development

1. House AppropriationsSubcommittee on Business and Economic Development Budget Hearing Texas Department of Banking Testimony of: Charles G. Cooper – Banking Commissioner February 26, 2009

2. Department Overview • 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 industry is countercyclical, and during times of economic stress there is an increased need for supervision. Budget Hearing

3. 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-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. • 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. Budget Hearing Offered by: Texas Department of Banking February 2009

4. 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. Budget Hearing

5. Assets Under Supervision in Texas Budget Hearing

6. 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. 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, average 11% of total expenditures. Budget Hearing Offered by: Texas Department of Banking February 2009 6

7. Summary of L.A.R. for FY 2010 and 2011Texas Department of Banking Summary of L.A.R. for FY 2010 and 2011Texas Department of Banking Summary of L.A.R. for FY 2010 and 2011Texas Department of Banking Budget Hearing Offered by: Texas Department of Banking February 2009 7

8. Summary of L.A.R. for FY 2010 and 2011Texas Department of Banking Budget Hearing Offered by: Texas Department of Banking February 2009 8

9. Summary of L.A.R. for FY 2010 and 2011Texas Department of Banking Summary of L.A.R. for FY 2010 and 2011Texas Department of Banking Budget Hearing Offered by: Texas Department of Banking February 2009 9

10. Exceptional Items Requested for FY 2010 and 2011 Texas Department of Banking Budget Hearing Offered by: Texas Department of Banking February 2009 10

11. Possible New Exceptional Items Requested for FY 2010 and 2011 Texas Department of Banking • Problem banks require experienced examiners that can adequately identify weak lending practices that may further deteriorate the bank financial condition. • Problem banks are examined 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 of compliance with administrative and enforcement actions. 11 Offered by: Texas Department of Banking February 2009 11 Budget Hearing

12. Possible New Exceptional Items Requested for FY 2010 and 2011 Texas Department of Banking 12 Budget Hearing Offered by: Texas Department of Banking February 2009 12

13. Texas Department of Banking Salary Comparison 13 Budget Hearing Offered by: Texas Department of Banking February 2009

14. Profile of Regulated Entities Information as of September 2008. * Does not include 22 out-of-state, state-chartered banks operating in Texas ($28,108 million) Budget Hearing Offered by: Texas Department of Banking February 2009

15. Department Staffing by Strategy [1] Represents actual staffing as of 12/1/08. [2] Including interagency transfers. Budget Hearing Offered by: Texas Department of Banking February 2009 15

16. Appendix A