Budget Hearing

1. Senate Finance Committee Budget Hearing Texas Department of Banking Testimony of: Randall S. James – Commissioner September 13, 2004

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 • 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. • Trust Companies • 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. • Offices of Foreign Bank Agencies • 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, Currency Exchange Businesses, Sale of Check Licensees, 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 153 of the Texas Finance Code requires that the Banking Commissioner examine each currency exchange, transportation and transmission licensee annually to protect and safeguard customer funds and prevent money laundering and funding of terrorist activities. • Chapter 152 of the Texas Finance Code requires that the Banking Commissioner examine each sale of check licensee annually or more often as deemed necessary 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. Profile of Regulated Entities Budget Hearing

5. Department Staffing by Strategy (1) Represents actual staffing as of 7-31-04. Budget Hearing

6. Revenue Sources • The Department is fully self-funded and fully self-leveling. • 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 Department of Banking is limited to collecting fees and assessments that cover only the agency’s direct and indirect expenditures related to bank supervision (See 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 9% of total expenditures. Budget Hearing

7. Summary of L.A.R. for FY 2006 and 2007Texas Department of Banking Agency Funding at the 95% Target Level Exceptional Items Requested for Fiscal Years 2006 and 2007 Fiscal Years 2004-2005 Update

8. Delegated Authority for Financial Regulator • The Finance Commission discussed and approved a resolution at its Board meeting on August 20, 2004, directing the Finance Commission Agencies to seek self-directed status, including removal from the appropriations process in the 2005 Legislative session. Factors that influenced adoption of this resolution: • The Department of Banking is fully self-funding and fully self-leveling. The agency neither provides to, nor takes funds from the General Revenue Fund. • A delegated operational status allows greater flexibility to regulate the entire finance industry and to respond to changing economic conditions, which reduces the systemic risk within the industry and protects the public. • The Department of Banking remains accountable to the Finance Commission and Legislative Committee oversight and subject to audit by the State Auditors’ Office and Comptroller’s Office. • Removing statutory restrictions on administrative flexibility can save costs and improve efficiency and productivity. • Human resource functions can be more effectively and efficiently managed, which in turn helps the Department preserve human resources by controlling employee turnover and retaining experienced personnel. • Delegated authority in operationally administrative areas would include the Finance Commission building, employee levels, employee compensation, and out-of-state travel. Budget Hearing