Abolish the State Banking Board and Transfer its Function to the Commissioner of Banking

The Legislature should abolish the State Banking Board and transfer its function to the Commissioner of Banking.


Background
The State Banking Board (SBB) is primarily responsible for chartering state banks and trust companies. The board consists of three members the Commissioner of Banking, the State Treasurer and a citizen appointed by the Governor to represent the interests of the general public.

Prior to the creation of the Finance Commission in 1943, the SBB also was responsible for regulating and supervising state banks. Today, the Finance Commission s Department of Banking (DOB) headed by the Commissioner of Banking is responsible for these duties. The SBB has no staff of its own and has delegated its remaining duty of investigating and reviewing charter app lications to the staff of the DOB and to hearings examiners who prepare a record of findings and recommendations for the board s review.

In the last ten years, annual charter applications have declined from 99 in fiscal 1973 to only nine in fiscal 1992. T his reduction in number of charter applications has substantially reduced the number of decisions required from the SBB. Although the number of pending applications for conversion from federal to state charter, mergers and acquisitions are on the rise, the investigative work and final recommendations for these actions are prepared by staff from the DOB. The final step of review for approval or denial is the only action left to the SBB.

One reason for an independent banking board is to discourage arbitrary actions by the Commissioner of Banking. However, due to a recent legislative change, the Finance Commission is now comprised of a majority of public members, and arbitrary actions by the commissioner no longer seem to represent a significant concern.

Financial institutions other than banks do not have to go through this type of chartering process in Texas. State charter applications for credit unions or savings and loans are not subject to an independent board review. Furthermore, in a majority of the states, the banking commissioner is responsible for these functions.

The Banking Commissioner, as director of every phase of banking regulation, is responsible for all other functions, including the approval of directors, bylaws, stock transfers, changes of control, mergers, branching, charter amendments, amendments to art icles of incorporation and foreign bank agents. Given the significant participation of the commissioner and the staff of the DOB in the chartering process, the need for a separate board approval mechanism is questionable at best.


Recommendation
The State Banking Board (SBB) should be abolished. All functions currently performed by the SBB should be transferred to the Commissioner of Banking, with oversight by and appeals made to the Finance Commission.

Continuing oversight by and appeals to the Finance Commission should prevent arbitrary or abusive decisions on the part of the commissioner. The recommendation assumes that the DOB would provide applicants with the same judicial rig hts and means of appeal currently available in SBB decisions.

Implications
This recommendation should provide for a more efficient system of charter application review and approval. Delays associated with convening the SBB to review DOB recommendations would be avoided. There would be no significant change in the way statutes inv olving charters are administered; moreover, this change would provide a system consistent with that used in a majority of states, as well as in Texas own chartering of credit unions and savings and loans.


Fiscal Impact
The direct and indirect costs associated with maintaining the SBB are currently absorbed within the Department of Banking Expense Fund. Therefore, the shift of responsibility would not create additional costs for the DOB.

In past years, the only public member of the board has been based in Austin, and no incidental expenses have been filed for or paid to that board member, according to a spokesman for the Department of Banking. Since the current public member is based in San Antonio, some additional expenses could be avoided by eliminating the board; but these expenses consisting of mileage that could be claimed for an average of six meetings per year are relatively insignificant and have not been estimated for this report.