House Committee on Pensions, Investments, and Financial
Services March 1, 2011 Charles G. Cooper Banking Commissioner Texas
Department of Banking
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Department Overview Established in 1905 by the 29 th
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.
Department Motto Tough but Fair. 2 Presented by the Texas
Department of Banking
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Profile of Regulated Entities 3 Presented by the Texas
Department of Banking Regulated EntitiesNumber of Entities As of
December 31, 2010 Commercial Banks314 Public Trust Companies 20
Nonexempt 22 Exempt Foreign Bank Agencies 10 FBAs 18 Representative
Offices Money Service Businesses133 Prepaid Funeral Contract
Sellers403 Perpetual Care Cemeteries244 Private Child Support
Enforcement Agencies 10* Check Verification Entities4* *
Registration requirement only The Department conducts examinations
of entities under its supervision to ensure entities operate in a
safe and sound manner and are in compliance with state and federal
laws. Assets of the regulated entities represented in the table are
approximately $360 billion.
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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. 4 Statutory Mandates Presented by the
Texas Department of Banking 4
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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. Statutory Mandates Presented
by the Texas Department of Banking 5
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Possible Legislation 6 Presented by the Texas Department of
Banking Prepaid Funeral Benefit Contracts - Chapter 154 of the
Texas Finance Code: Expand Guaranty Fund to include defaulting
funeral providers for insurance-funded prepaid funeral benefit
contracts Establish procedures and parameters for Guaranty Fund
claims for defaulting funeral providers Perpetual Care Cemeteries -
Chapters 711 and 712 of the Texas Health Safety Code: Establish
completion deadlines, standards and disclosures for
preconstruction-lawn crypt sales Clarify requirements and
parameters for a Certificate of Authority to operate a perpetual
care cemetery Provide mechanism for small inactive cemeteries to be
removed from regulation Expand enforcement authority for marker
restitution, cease and desist for uncorrected violations and
emergency orders for irreparable harm Allow agency to serve as
temporary receiver when cemetery charter is revoked Banks and Trust
Companies Chapters 35, 185, and 202 of the Texas Finance Code:
Broaden the grounds for issuing an order prohibiting a banker or
trust company officer who has engaged in serious misconduct in a
financial institution from further participation in banking or
trust companies Allow the commissioner to make prohibition orders
less than perpetual Allow the imposition of administrative
penalties on individuals as well as banks and trust companies
Broaden the grounds for assessing administrative penalties and
raises the maximum amount
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7 Presented by the Texas Department of Banking Managing
troubled assets and engaging in robust servicing and collection
practices. Acquiring stable and reasonably priced funding sources.
Managing a narrowing net interest margin in a low rate environment.
Seeking revenue diversification through noninterest income sources.
Navigating and adapting to a changing regulatory environment (Dodd-
Frank). State Bank Challenges in Todays Economy
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Presented by the Texas Department of Banking 8 Source: FDIC (as
of 12/31/2009) Bank Failures Commercial Banks
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9 Presented by the Texas Department of Banking Problem
State-Chartered Banks A bank with an overall composite rating of 3,
4 or 5 is defined by the Department as a problem bank.
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Presented by the Texas Department of Banking Source: FDIC
Assets Under Supervision in Texas 10
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Issues of significance to state bank regulation and the dual
banking system: Dual banking system was preserved through the
Federal Reserve's role as a supervisor of state member banks. Banks
now have de novo interstate branching authority. The federal thrift
charter was preserved; however, the Office of Thrift Supervision
(OTS) will be merged into the Office of the Comptroller of the
Currency (OCC). Bank holding companies with $15 billion and under
in total assets will have permanent grandfathering of capital
treatment for existing trust-preferred securities. State banking
commissioners, as well as state insurance and securities
regulators, will have non-voting representative on the Financial
Stability Oversight Council. (Sept. 2010) State Banking
Representative: William S. Haraf, Commissioner of the California
Department of Financial Institutions State Insurance
Representative: John M. Huff, Director of the Missouri Department
of Insurance, Financial Institutions and Professional Registration
Securities Representative: David S. Massey, Deputy Securities
Administrator for the North Carolina Securities Division Highlights
12 Presented by the Texas Department of Banking
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The 10% nationwide deposit cap that limits bank acquisitions
will now apply to acquisitions by federal thrifts. Repeal of family
office exemption from investment advisor registration has generated
increased interest in family trust activities. The Federal Reserve
will now be responsible for conducting bank-like examinations for
certain non-bank subsidiaries of bank holding companies. The Fed
will be required to coordinate with state regulators for
subsidiaries that are state-chartered/licensed, and may conduct
joint and alternating examinations with the States.
Noninterest-bearing transaction accounts will be fully insured by
the FDIC effective December 31, 2010, but this provision will be
repealed effective January 1, 2013. Effective July 22, 2011,
depository institutions will be permitted to pay interest on demand
deposits. Basic FDIC insurance coverage permanently increased to
$250,000 per depositor. Highlights (continued) 13 Presented by the
Texas Department of Banking
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Consumer Financial Protection Bureau (CFPB) Enacted on July 22,
2010, but most provisions in this title do not become effective
until July 21, 2011. The Bureau must propose rules that combine
Truth in Lending Act and Real Estate Settlement Procedures Act
disclosures into a single document. The Bureau will be required to
coordinate with state regulators in various aspects of its
responsibilities, including supervision and registration. Should
the Bureau choose to pursue registration of covered entities, the
Bureau will be required to coordinate and consult with the states.
Covered entities are defined as individuals or entities engaged in
offering or providing consumer financial products and services.
January 4, 2011: Memorandum of Understanding (MOU) signed by the
Conference of State Bank Supervisors (CSBS) to establish a
foundation of state and federal coordination and cooperation for
supervision of providers of consumer financial products and
services. January 11, 2011: Texas Department of Banking signed MOU
Information Sharing Agreement with CFPB and CSBS for consumer
protection purposes. Highlights (continued) 14 Presented by the
Texas Department of Banking
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Consumer Financial Protection Bureau (CFPB) The state-federal
balance with regard to national bank preemption has been
significantly re-balanced with a new requirement that preemption
for national banks may only occur on a case-by-case basis and
according to the Barnett decision's "prevent or significantly
interfere" standard. State Attorney Generals will have the
authority to enforce the Bureau's rules against national banks.
Small banks with $10 billion or less in assets are carved out from
the Bureau's supervision and enforcement, both of which are left to
their prudential regulators. However, the Bureau will have
rulemaking authority over these entities. Highlights (continued) 15
Presented by the Texas Department of Banking