7 TAC §§3.36-3.38
The Finance Commission of Texas (the commission) proposes
to amend §§3.36-3.38, concerning the imposition and collection of
ratable and equitable fees from state banks, foreign bank branches, foreign
bank agencies, and foreign bank representative offices, to provide for recovery
of the cost of maintenance and operation of the Texas Department of Banking
(the department) and the cost of enforcing Finance Code, Title 3, Subtitles
A and G, during the 2000-2001 biennium.
Changes are proposed to increase the annual assessment fees for all banks,
foreign bank branches, and foreign bank agencies, and to impose annual assessment
fees for all foreign bank representative offices. In addition, changes are
proposed to clarify the procedure for the billing and payment of such fees.
A minor change is proposed to clarify the method in which all banks, foreign
bank branches, and foreign bank agencies will calculate average off-book assets
in computing assessable assets. Finally, changes are proposed to prepare for
the implementation of new Finance Code, Title 3, Subtitle G, Chapters 201-204,
enacted by House Bill 2066, §1.001, 76th Legislature, effective September
1, 1999.
Discussion of §3.36 and reasons for proposed
changes.
Section 3.36 specifies the manner in which assets are adjusted from call
report data to determine the assessment base, to which the calculations and
rates specified in existing §3.37, with respect to a state bank, and
§3.38, with respect to a foreign bank agency, are applied to derive the
annual assessment fee. Section 3.36 also categorizes banks in classes, based
on public risk and relative financial health, for purposes of applying higher
rates to banks that require more frequent examination and regulatory supervision.
The rule also specifies the manner in which adjustments are made during the
assessment cycle based on changed circumstances, and details the method of
billing and collecting assessments in installments. Finally, §3.36 authorizes
the department to charge and collect examination fees based on hourly or daily
rates for specialty examinations unrelated to routine safety and soundness
supervision, such as for investigations related to requested business combinations
or changes in corporate structure, or for examination of other regulated entities
that do not pay basic assessment fees.
Section 3.36 is proposed to be amended in several respects. First, the
commission proposes an amendment to §3.36(c) relating to the calculation
of average off-book assets by all banks, foreign bank branches, and foreign
bank agencies in computing assessable assets. Since the adoption of the existing
section there have been changes to Schedule RC-L, promulgated by the FDIC,
which is used by the department to base its calculation of off-book assets.
The new definition provides for exclusions from the calculation based on the
revised FDIC schedule.
Second, with regard to the manner of billing and payment of annual assessment
fees, the commission proposes to amend §3.36(d) to give the department
the option of requiring banks, foreign bank branches, and foreign bank agencies
to pay through electronic funds transfer. At present, the department believes
the cost of collecting assessments by electronic funds transfer would exceed
the benefits, but in accordance with Senate Bill 801, 76th Legislature, effective
September 1, 1999, the department will be required to include in its agency
strategic plan a plan for receiving such assessments through electronic means.
In addition, the commission proposes to amend §3.36(f)(1) to provide
that a change in the size, condition, or other characteristics of a bank that
affects the relative assessment rate by changing the examination frequency
of the bank will cause the annual assessment to be adjusted effective as of
the first billed quarterly installment after the change. Similarly, the commission
proposes to amend §3.36(f)(2) to provide that an acquisition or merger
involving a surviving state bank, foreign bank branch, or foreign bank agency
will cause the annual assessment to be adjusted effective as of the first
billed quarterly installment after the acquisition or merger. This proposed
amendment will conform to the department's actual practice; the prior adjustment
method has proved to be unworkable.
New Finance Code, Title 3, Subtitle G, Chapters 201-204, enacted by House
Bill 2066, §1.001, 76th Legislature, provides for interstate banking
and branching, and new authority for foreign banks in this state, effective
September 1, 1999. Under Finance Code, §201.005(a)(5), the banking commissioner
may assess supervisory and examination fees to be paid by (1) a bank holding
company that controls a Texas bank, (2) an out-of-state, state-chartered bank
with an interstate branch in this state, and (3) a foreign bank with a branch,
agency, or representative office in this state, in connection with performance
of duties under Subtitle G.
Finance Code, §202.005(a)(1), authorizes examination of a bank holding
company, and Finance Code, §203.007(a), authorizes examination of an
interstate branch in this state of a state-chartered bank. Because such examinations
will be rare, the commission proposes an amendment to §3.36(h) to provide
that these examinations will be performed for a daily rate in lieu of the
assessment.
Pursuant to Finance Code, Chapter 204, foreign banks may establish branches,
agencies, and representative offices in this state. Finance Code, §204.003,
authorizes the department to examine foreign bank branches, agencies, and
representative offices in this state, and requires the foreign bank to pay
fees for examination. Under existing §3.36(h), foreign bank representative
offices are billed a fee for examinations at a uniform rate of $500 per examiner
per day, plus travel expenses incurred. The commission proposes to amend §3.36(h)
to remove foreign bank representative offices from the special examination
provisions of that section, and to add a new subsection (j) to provide that
foreign bank representative offices will be billed an annual assessment fee
of $2,500 on September 1 of each year to cover examinations and all associated
expenses.
For both legal and economic reasons, it is unlikely that a foreign bank
will establish a branch in this state in the foreseeable future. However,
if one is established, it will be very similar in function and operation to
a foreign bank agency, differing only with respect to the types of deposits
that can be accepted as provided by Finance Code, §204.105(b). The commission
is therefore proposing amendments throughout §3.36 to provide for assessing
a foreign bank branch, if any, in the same manner as a state bank or foreign
bank agency.
Discussion of §3.37 and §3.38 and reasons
for proposed changes.
Existing §3.37 and §3.38 specify calculations and rates for assessment
fees imposed on state banks and foreign bank agencies, respectively. The department
has been able to avoid increasing assessment fees since converting from an
examination fee structure to an annual assessment structure in 1994. However,
due to a reduction in the number of state banks and foreign bank agencies
in the state banking system and the associated redistribution of assets among
these entities, these assessment rates must be increased for the 2000-2001
biennium to meet Finance Code mandates that the department be self-supporting
through industry fees. The proposed amendments to §3.37 and §3.38
are designed to meet this goal without generating excessive revenue, and the
department has worked diligently to keep the required fee increase to a minimum.
A bank's assessment is currently calculated using three factors: (1) a
base assessment amount; (2) a percentage rate factor; and (3) the examination
frequency. The assessment for a foreign bank agency is currently calculated
using a base assessment amount and a percentage rate factor.
The commission proposes to amend §3.37 relating to the calculation
of the annual assessment for banks by revising the manner in which the three
factors are used to compute such fees. The commission proposes to increase
the starting base assessment amount from $1,000 to $1,250. In addition, the
commission proposes to increase the incremental rates charged to each assessment
group. Finally, the commission proposes to reduce the discount applied to
banks on an 18-month examination cycle from 15% to 12.5%, and increase the
premium charged to banks on a 6-month examination cycle from 62% to 100%.
These proposed changes have been compiled in Figure: 7 TAC §3.37 listing
the steps to calculate a bank's annual assessment fee, proposed to replace
the table in existing §3.37.
Likewise, the commission proposes to amend §3.38 relating to the calculation
of the annual assessment for foreign bank agencies to include foreign bank
branches, and by revising the manner in which the factors are used to compute
such fees. The commission proposes to reduce the number of assessment groups
from eight to three, and to increase the base assessment amount to $10,000
for all foreign bank branches or agencies. In addition, the commission proposes
to impose an incremental rate factor for foreign bank branches or agencies
with assessable assets exceeding $70 million. These proposed changes have
been compiled in Figure: 7 TAC §3.38 listing the steps to calculate a
foreign bank branch or agency's annual assessment fee, proposed to replace
the table in existing §3.38.
In determining the proposed base assessment amounts and incremental rate
factors used in §3.37 and §3.38, the department conducted an extensive
review of current and projected staffing needs in accordance with the statutory
mandate to periodically examine banks and foreign bank offices, and to safeguard
the safety and soundness of the state banking system. The department projected
the cost of maintaining and operating the department and enforcing the statute
to arrive at the aggregate annual assessment fees required to be collected
during the 2000-2001 biennium. The department then projected the aggregate
annual assessment fees estimated to be collected during this period based
on the existing calculations and rates in §3.37 and §3.38. In order
to meet the projected shortfall in revenue, the department determined to increase
the annual assessment fees for all banks, foreign bank branches, and foreign
bank agencies, and to impose annual assessment fees for all foreign bank representative
offices.
Fiscal implications of proposed changes.
Randall S. James, Deputy Commissioner, Texas Department of Banking, has
determined that, for each year of the first five years the section is in effect,
there will be fiscal implications for state government as a result of enforcing
or administering these sections but no fiscal implication for local government.
Mr. James estimates that the amount of revenue the sections will generate
for state government for each of the first five fiscal years the proposed
sections are in effect, assuming the department fully utilizes its spending
authority for the 2000-2001 biennium and that its spending authority in future
bienniums is unchanged, will be $9,029,000 for 2000, $8,879,000 for 2001,
$8,729,000 for 2002, $8,579,000 for 2003, and $8,429,000 for 2004.
Mr. James also has determined that, for each year of the first five years
the sections are in effect, the public benefit anticipated as a result of
enforcing these sections is the economic self-sufficiency of the department
with respect to regulation of the banking industry. The probable economic
cost to persons required to comply with these sections will consist of the
payment by affected banks and foreign bank branches, agencies, and representative
offices, of assessment fees in accordance with the revised calculations and
rates provided for herein. There will be no adverse effect on small businesses
or micro-businesses, except that a regulated entity affected by these sections
will likely be required to pay a higher annual assessment fee for the same
amount of assessable assets than in previous years. To ameliorate the effect
of the annual assessment on smaller, well-run state banks, in 1995 the department
adopted an extended examination cycle of eighteen months for such institutions
(Policy Memorandum--1003).
Comments on the proposed section may be submitted in writing to Jeffrey
L. Schrader, Assistant General Counsel, Texas Department of Banking, 2601
North Lamar Boulevard, Austin, Texas 78705-4294.
The amendment is proposed pursuant to Finance Code, §§11.301,
31.003(a)(4), and 39.002. The amendment is also proposed pursuant to Finance
Code, §201.003(a)(4), as added by House Bill 2066, §1.001, 76th
Legislature (1999), effective September 1, 1999. These statutes authorize
the commission to adopt rules providing for the recovery of the cost of maintenance
and operation of the department and the cost of enforcing Finance Code, Title
3, Subtitles A and G, through the imposition and collection of ratable and
equitable fees for notices, applications, and examinations. Pursuant to 1997
Appropriations Act, Article IX, §77, the agency informs prospective payers
of the fee that the fees covered by these sections were set by the agency
and not mandated by the Legislature.
Finance Code, §§31.003(a)(4), 31,005-31.007, 32.004(b), 32.502(c),
39.002, 201.005, 202.005(a)(1), 203.007(a), and 204.003, are affected by the
proposed amendment.
§3.36. Annual Assessments and Specialty Examination Fees.
(a)
Authority. The assessment schedule contained in this section
is made under the authority contained in Finance Code, §31.003(a)(4)
and §204.003(b)
.
(b)
Definitions. The following words and terms, when used in
this section, shall have the following meanings, unless the context clearly
indicates otherwise.
(1)
Assessable assets--The sum of on-book assets and average
off-book assets of a bank
, foreign bank branch,
or foreign bank
agency.
(2)
Average off-book assets--The average of the off-balance
sheet items reported by a bank in its most recent March 31st call report and
the three immediately preceding call reports, as adjusted under subsection
(c) of this section and pursuant to the instructions accompanying the assessment
form applicable to and submitted by the bank
, foreign bank branch,
or foreign bank agency.
(3)
Call report--The quarterly, consolidated report of
condition and income (including domestic and foreign subsidiaries) promulgated
in a form by the Federal Financial Institutions Examination Council and prepared
and filed by a bank
, foreign bank branch,
or foreign bank agency
under state and federal law.
(4)
(No change.)
(5)
On-book assets--The total assets reported by a bank
, foreign bank branch, or foreign bank agency
on the balance sheet contained
in its most recent March 31st call report.
(c)
Calculation of average off-book assets. A bank
, foreign
bank branch, or foreign bank agency
must calculate a four-quarter average
of off-book assets, as adjusted under this subsection, using the most recent
March 31st call report and the three preceding call reports, as a component
of assessable assets. In general, the bank
, foreign bank branch, or foreign
bank agency
must sum all line items for which values are included on
"Schedule RC-L-Off Balance Sheet Items,"
which could result in assets
of the institution,
with the exception of:
(1)-(2)
(No change.)
(3)
Participations in acceptances conveyed to others by
the reporting bank
, foreign bank branch, or foreign bank agency
;
and
(4)
All line items related to derivative products
as identified by the department
[
Gross commitments to sell
].
(d)
Annual assessment
for banks, foreign bank branches,
and foreign bank agencies
. The department will establish the annual
assessment for each bank
, foreign bank branch,
and foreign bank
agency effective September 1 of each year. Each bank
, foreign bank branch,
and foreign bank agency must pay to the department the annual assessment
fee, in quarterly installments as billed effective September 1, December 1,
March 1, and June 1 of each year, except that an installment may be adjusted
under subsections (f) and (g) of this section.
To facilitate collection,
the department may require each bank, foreign bank branch, and foreign bank
agency to pay quarterly installments through electronic funds transfer on
each effective billing date.
Assessments will be calculated on the total
assessable assets. The assessment will be calculated on the basis of the factors
identified in and in the manner described in §3.37 of this title (relating
to Calculation of Annual Assessment for Banks) or §3.38 of this title
(relating to Calculation of Annual Assessment for Foreign Bank
Branches
and
Agencies).
(e)
Review of assessment factors. The department will review
all appropriations authorities, expenditure patterns, and other costs related
to bank
,
[
or
] foreign bank
branch, or foreign bank
agency examination and supervision functions, and present to the finance
commission no less frequently than once each biennium such information and
a calculation chart that sets forth the annual assessment factors.
(f)
Interim adjustments.
(1)
If
the
[
a bank or foreign bank agency's
] size, condition, or other characteristics
of a bank
change
sufficiently during a year to cause the bank [
or foreign bank agency
] to fall into a different
category of
examination frequency,
the department will adjust the annual assessment
to the appropriate rate
beginning with the first billed quarterly installment after the change in
[
in the quarter of the change to reflect only the quarter or quarters
of the year in which the bank or foreign bank agency falls into a different
] examination frequency.
(2)
In the event of an acquisition or merger involving
a surviving state bank
,
[
or
] foreign bank
branch,
or foreign bank
agency, the department will adjust the annual assessment
to reflect the result of the acquisition or merger beginning with the first
billed quarterly installment after the consummation of the transaction
[
in the quarter of the acquisition or merger to reflect only the quarter
or quarters of the year in which the bank or foreign bank agency falls into
a different asset group as a result of the acquisition or merger
]. The
asset group will be calculated on the basis of the combined assessable assets,
including branches, of the surviving bank
,
[
or
] foreign
bank
branch, or foreign bank
agency.
(3)
(No change.)
(4)
Each bank
,
[
or
] foreign bank
branch, and foreign bank
agency, on the due date of an assessment installment,
must pay to the department the full quarterly installment of the assessment
for the next three-month period without proration for any reason.
(g)
Adjustment of an installment. The commissioner may, after
review and consideration of actual expenditures to date and projected expenditures
for the remainder of the fiscal year, lower the
aggregate
amount
of an installment
and bill each bank, foreign bank branch, and foreign
bank agency a proportionally lower amount
[
due from banks or foreign
bank agencies
], without the prior approval of the finance commission.
(h)
Specialty examination fees.
(1)
Examinations of fiduciary activities and other special
examinations and investigations, including but not limited to examinations
of
bank holding companies, interstate branches of state banks in Texas
as host state
[
representative offices of foreign bank agencies
], affiliates, and third-party contractors, are subject to a separate
charge to cover the cost of time and expenses incurred in these examinations.
(2)
The [
bank or foreign bank agency shall pay to
the department a
] fee for
an
examination under this subsection
will be
calculated at a uniform rate of $500 per examiner per day to
cover the cost of the examinations including the salary expense of examiners
plus a proportionate share of department overhead allocable to the examination
function. The commissioner may lower the uniform rate without the prior approval
of the finance commission.
(3)
In connection with an examination under this subsection,
the regulated entity or other legally responsible party
[
a bank
or foreign bank agency
] shall
pay to the department the examination
fee set forth in paragraph (2) of this subsection, and shall
also pay
to the department an amount for actual travel expenses incurred by the examiners,
including mileage, public transportation, food, and lodging[
, in addition
to paying the examination fee set forth in paragraph (2) of this subsection
].
(i)
(No change.)
(j)
Annual assessment for foreign bank representative offices.
The annual assessment fee for foreign bank representative offices will be
$2,500, and will cover the cost of examinations and all associated expenses.
Each foreign bank representative office must pay to the department the annual
assessment fee effective September 1 of each year. To facilitate collection,
the department may require each foreign bank representative office to pay
the annual assessment fee on September 1 of each year through electronic funds
transfer.
§3.37. Calculation of Annual Assessment for Banks.
The annual assessment for a state bank is calculated as described in
§3.36 of this title (relating to Annual Assessments and Specialty Examination
Fees), based on the values in the following table:
Figure: 7 TAC §3.37
§3.38. Calculation of Annual Assessment for Foreign Bank Branches or Agencies.
The annual assessment for a foreign bank
branch or
agency
is calculated as described in §3.36 of this title (relating to Annual
Assessments and Specialty Examination Fees), based on the values in the following
table:
Figure: 7 TAC §3.38
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of the Secretary of State, on
June 25, 1999.
TRD-9903801
Everette D. Jobe
General Counsel
Texas Department of Banking
Earliest possible date of adoption: August 20, 1999
For further information, please call: (512) 475-1300