HBA-JLV C.S.H.B. 1768 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 1768 By: Grusendorf Financial Institutions 3/30/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE The banking industry has changed rapidly over the last decade. Technological advancements and regulatory reform at both the state and national levels may have rendered some aspects of the state's laws regarding financial institutions obsolete. C.S.H.B. 1768 provides clarifications in finance law, regulatory authority, and efficient administration by the Finance Commission of Texas and the Texas Department of Banking. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Finance Commission of Texas in SECTION 1.04 (Section 12.107, Finance Code) of this bill. ANALYSIS C.S.H.B. 1768 amends the Finance Code to provide for clarifications in finance law, regulatory authority, and efficient administration by the Finance Commission of Texas (commission) and the Texas Department of Banking (department). The bill authorizes the banking commissioner (commissioner) to designate one or more deputies and requires the commissioner to prescribe the qualifications and duties of a deputy (Sec. 12.102). The bill prohibits a person from being a department employee if the person or the person's spouse is an officer, employee, or paid consultant of a Texas trade association in an industry regulated by the department. The bill creates additional conflict of interest provisions for an employee of the department involving financial relationships with persons regulated by the department. The bill also provides exemptions from these provisions for administrative or clerical employees or employers involved in financial relationships before these provisions are adopted and who take certain steps to ensure there is no conflict of interest. The bill authorizes the commissioner to adopt employment policies for the enforcement of the conflict of interest provisions. The bill also authorizes the commission to adopt rules to administer provisions relating to conflicts of interest, including rules to codify employment policies of the commissioner, and to establish additional limits, requirements, or exemptions (Sec. 12.107). The bill repeals certain provisions that establish criminal offenses for conflicts of interests, thereby providing that conflicts be dealt with by employment policies (SECTION 1.06). The bill requires the commissioner to examine each state bank not less than once each 12-month period, except that certain banks can be examined every 18 months (Sec. 31.105). The bill provides that the commissioner may convene a hearing to receive evidence and argument regarding any matter within the jurisdiction of the commissioner, rather than solely regarding any matter before the commissioner for decision or review (Sec. 31.201). The bill provides that the commissioner or an officer or employee of the department commits a Class A misdemeanor if the person discloses information or permits access to a file or record of the department with the knowledge that this action is an offense (Secs. 31.301 and 181.301). The bill removes provisions requiring the commissioner to notify organizers when the application process for a state bank charter is complete and provides more explicit requirements for organizers when providing public notice of the application (Sec. 32.004). The bill provides that activities other than loan solicitations may occur at a loan production office established by state banks (Sec. 32.204). The bill removes provisions providing that a lease agreement between a state bank and its affiliates must be approved by the commissioner (Sec. 33.109). The bill authorizes a state bank to make loans on the collateral security of securities issued by an affiliate provided the loan is in compliance with federal law (Sec. 34.102). The bill eliminates language providing that a person who installs, maintains, or operates electronic terminals is subject to provisions governing licensing for currency exchange, transportation, or transmission (Sec. 59.201). The bill authorizes the commissioner to issue a written order that articulates the required finding in order to close and liquidate a trust company (Sec. 186.201). After closing a state trust company, the bill requires the commissioner to attach or otherwise display at its main entrance a copy of the written closing order containing the findings on which the closing of the state trust company is based. The bill requires the commissioner to tender the state trust company to the Federal Deposit Insurance Company or initiate a receivership proceeding by filing a certified copy of the closing order in district court in Travis County. (Sec. 186.202). EFFECTIVE DATE September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 1768 modifies the original to prohibit a person from being a Texas Department of Banking (department) employee if the person or the person's spouse is an officer, employee, or paid consultant of a Texas trade association in an industry regulated by the department. The original bill extended this prohibition only to officers of the department (12.107). The substitute restores existing law providing that information obtained by the banking commissioner in an application for acquisition of control of a state bank is confidential (Secs. 33.002 and183.002). The substitute no longer contains provisions from the original requiring an industry-related member of the Finance Commission of Texas (commission) to be appropriately qualified at the time of appointment and at all times thereafter (Sec. 11.102). The substitute modifies the original to require the commissioner to examine each state bank not less than once each 12-month period, except that certain banks may be examined once during each 18-month period. Whereas, the original bill required the commissioner to examine each state bank annually, on another periodic basis, or as the commissioner considers necessary (Sec. 31.105).