TITLE 7. BANKING AND SECURITIES

PART 1. FINANCE COMMISSION OF TEXAS

CHAPTER 3. STATE BANK REGULATION

SUBCHAPTER B. GENERAL

7 TAC §3.36

The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), proposes to amend §3.36, concerning annual assessments and specialty examination fees. The amended rule is proposed to mitigate the assessment effects of participating in the Paycheck Protection Program (PPP) by decreasing a state bank's assessment base by the amount attributable to PPP loans reflected in the bank's financial statements.

Recent events have significantly and adversely impacted the global economy and financial markets. The spread of the Coronavirus Disease (COVID-19) has slowed economic activity in many countries, including the United States. Small businesses have experienced liquidity difficulties and a collapse in revenue streams as millions of Americans have been ordered to stay home, severely reducing their ability to engage in normal commerce. Many small businesses have been forced to close temporarily or furlough employees. Continued access to financing is crucial for small businesses to weather economic disruptions caused by COVID-19 and, ultimately, to help restore economic activity.

As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Public Law 116-136 (Mar. 27, 2020), and in recognition of the exigent circumstances faced by small businesses, the United States Congress created the PPP. PPP loans are fully guaranteed as to principal and accrued interest by the Small Business Administration (SBA), the amount of each being determined at the time the guarantee is exercised. As a general matter, SBA guarantees are backed by the full faith and credit of the U.S. Government. PPP loans also afford borrowers forgiveness up to the principal amount of the PPP loan if the proceeds of the PPP loan are used for certain expenses. The SBA reimburses PPP lenders for any amount of a PPP loan that is forgiven. PPP lenders are not held liable for any representations made by PPP borrowers in connection with a borrower's request for PPP loan forgiveness. The program has since been renewed and extended several times and, unless further extended, new applications will not be accepted after May 31, 2021.

The annual assessment chargeable to a state bank for the 12-month period beginning each September 1 is calculated based in part on the institution's total assets as reported in its most recent March 31st call report. An institution that assists economic stability and recovery during the COVID-19 crisis by making PPP loans to customers will increase its total loan portfolio, all else being equal, which will increase the total assets on its balance sheet by an amount equal to the outstanding balance of PPP loans. Absent a change to the assessment rule, this increase in total assets will result in an increase to the institution's annual assessment.

In recognition of the important role Texas state banks have played in providing liquidity to small businesses and helping to stabilize the broader economy in the midst of the economic disruption caused by COVID-19, the agency proposes to mitigate the increased assessment by excluding the quarter-end outstanding balance of all PPP loans from the institution's total assets for purposes of calculating the institution's assessment.

Specifically, the definition of "on-book assets" in §3.36(b)(6) is proposed to be amended to subtract the outstanding balance of PPP loans included on "Schedule RC-M - Memoranda" in the institution's March 31st call report from total assets. In a conforming change, a definition for "PPP" is proposed to be added as new §3.36(b)(7).

Kurt M. Purdom, Deputy Commissioner, Texas Department of Banking, has determined that for the first five-year period the proposed rule is in effect, there will be de minimis fiscal implications for state government and no fiscal implications for local government as a result of enforcing or administering the rule.

Mr. Purdom also has determined that, for each year of the first five years the rule as proposed is in effect, the public benefit anticipated as a result of enforcing the rule is the mitigation of the assessment effects of state bank participation in the PPP.

For each year of the first five years that the rule will be in effect, there will be no economic costs to persons required to comply with the rule as proposed.

For each year of the first five years that the rule will be in effect, the rule will limit the effect of the existing rule by decreasing the amount of assessment fees paid to the agency that might otherwise be payable under the unamended rule, but will not, within the meaning and intent of Government Code, §2001.0221:

-- create or eliminate a government program;

-- require the creation of new employee positions or the elimination of existing employee positions;

-- require an increase or decrease in future legislative appropriations to the agency;

-- require an increase in fees paid to the agency;

-- create a new regulation;

-- expand or repeal an existing regulation;

-- increase or decrease the number of individuals subject to the rule's applicability; or

-- positively or adversely affect this state's economy.

There will be no adverse economic effect on small businesses, micro-businesses, or rural communities. There will be no difference in the cost of compliance for these entities.

To be considered, comments on the proposed amendment must be submitted no later than 5:00 p.m. on May 31, 2021. Comments should be addressed to General Counsel, Texas Department of Banking, Legal Division, 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294. Comments may also be submitted by email to legal@dob.texas.gov.

The amendment is proposed pursuant to Finance Code, §31.003(a)(4) and §31.106, which authorize the commission to adopt rules necessary or reasonable to recover the cost of supervision and regulation by imposing and collecting ratable and equitable fees. As required by Finance Code, §31.003(b), the commission considered the need to promote a stable banking environment, provide the public with convenient, safe, and competitive banking services, preserve and promote the competitive position of state banks with regard to national banks and other depository institutions in this state consistent with the safety and soundness of state banks and the state bank system, and allow for economic development in this state.

Finance Code, §31.106, is affected by the proposed amendment.

§3.36.Annual Assessments and Specialty Examination Fees.

(a) (No change.)

(b) Definitions. The following words and terms, when used in this section, §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), shall have the following meanings, unless the context clearly indicates otherwise.

(1) - (5) (No change.)

(6) 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, minus the outstanding balance of PPP loans included on "Schedule RC-M - Memoranda." [.]

(7) PPP--The Paycheck Protection Program administered by the Small Business Administration.

(c) - (i) (No change.)

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 16, 2021.

TRD-202101560

Catherine Reyer

General Counsel

Finance Commission of Texas

Earliest possible date of adoption: May 30, 2021

For further information, please call: (512) 475-1301