The Honorable Steve Ogden

Chairman

Senate Finance Committee

Post Office Box 12068 – Capitol Station

Austin, Texas  78711

The Honorable Jim Pitts

Chairman

House Appropriations Committee

Post Office Box 2910

Austin, Texas  78768-2910

RE:  Appropriations for Banking Department

Dear Sirs:

The Independent Bankers Association of Texas (IBAT) represents approximately 520 community banks in Texas.  These banks include commercial banks and savings institutions with both state and federal charters.  Additionally, as a personal aside, I had the privilege of serving as Deputy Banking Commissioner in Texas during the late 1980’s and early 1990’s, and was responsible at that time for dealing with the appropriations process as well as other legislative issues for the agency.

We sincerely appreciate the opportunity to comment on the appropriations process for the Texas Banking Department, and wish to go “on record” with our position on these important issues.  First, unlike many industries, we desire credible and effective examination and regulation of our banks.  Additionally, we (along with the other industries regulated by this agency) pay assessments to fund the entirety of the regulatory process and neither desire nor feel it appropriate to seek General Revenue funds to subsidize these activities.  We as an industry are willing to pay for experienced and competent regulatory oversight of our institutions, and believe that the Banking Department has been an exceptionally good steward of the funds generated from assessments on the industry.

The vast majority of the budget for this agency is expended on staff.  Experienced, tenured and well-trained examiners – as well as competent and knowledgeable management personnel – are critical for an effective examination process.  This agency competes with both the private sector and the various federal regulatory authorities for staff.  While there were some very welcomed enhancements to salary levels granted at several prior Legislative sessions, there are still dramatic disparities between the salary levels and overhead expenses at the state and federal regulatory agencies.

We fear that continued pressure to fulfill state mandates to cut spending levels will further exacerbate this situation, and indeed will diminish the effectiveness of this agency.  And, because of the self-funding nature of this agency, any cuts will have no impact on the state budget and will only serve to negatively impact the regulatory function. 

There is a “counter-cyclical” relationship between the general economic climate - and the related health of the banking industry - and the need for expenditures in the examination and regulatory functions.  During the “good times”, fewer staff and resources are needed to effectively regulate the industry.  The Banking Department has responded by lowering their staffing levels dedicated to the bank regulatory function.  As conditions become more difficult (or more complex, with a prime example being enhanced oversight responsibilities of homeland security measures), the demands upon this agency to capably perform their statutory functions escalates significantly.  Additionally, it is important for the management of these agencies to retain appropriate flexibility to “get ahead of the curve”.  There is a significant training period necessary to properly equip bank examiners to do their jobs, and such additionally creates a drain on existing staff as new personnel are brought “up to speed”.  Appropriate spending authority is especially crucial to allow this agency the flexibility to act accordingly based upon the condition of the industry, and to respond quickly to changes in this dynamic industry.

This agency, and the appropriate funding of the regulatory process, is crucial to the health and stability of our industry, and has a substantial impact on the overall economic vitality of the Texas economy.  Your understanding of the unique characteristics and needs of this agency in the appropriations process is important and appreciated.  Please let me know if you need any additional information, and thank you for your consideration of these comments.

Sincerely,

Stephen Y. Scurlock

Executive Vice President

CC:      The Honorable Randall S. James