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), adopts an amendment to §3.36, concerning annual assessments and specialty examination fees. The amended rule is adopted without changes to the proposed text as published in the April 30, 2021, issue of the Texas Register (46 TexReg 2875). The amended rule will not be republished.

The rule is amended 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 (March 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 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. The total loan portfolio of an institution that assists economic stability and recovery during the COVID-19 crisis by making PPP loans to customers increases, all else being equal, which increases the total assets on its balance sheet by an amount equal to the outstanding balance of PPP loans. Under the pre-amendment assessment rule, this increase in total assets would 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 adopted amendment mitigates this potential for increased assessments by excluding the outstanding balance of all PPP loans from the institution's total assets.

Specifically, the definition of "on-book assets" in §3.36(b)(6) is 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. A definition for "PPP" is also added as new §3.36(b)(7).

The department received one comment supporting the proposed amendment from the Independent Bankers Association of Texas.

The amendment is adopted 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.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 21, 2021.

TRD-202102384

Catherine Reyer

General Counsel

Finance Commission of Texas

Effective date: July 11, 2021

Proposal publication date: April 30, 2021

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