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Bank commissioner's budget cleared after discussion of TEFI risk and higher exam costs
Summary
The committee heard the Office of the State Bank Commissioner's FY2025–FY2027 budget request, questioned increases in contractual services driven by anticipated legal costs tied to a troubled technology-enabled financial institution (TEFI) and expanded IT exam work, and voted to forward the budget to Appropriations.
The House Agriculture and Natural Resources Budget Committee on Wednesday heard and approved the Office of the State Bank Commissioner's budget for fiscal years 2025–2027 after agency officials detailed spending increases tied to contractual legal expenses and expanded information-technology examinations.
Ariana Waddell, the committee fiscal analyst, summarized the State Bank Commissioner's FY2025 revised request at $13.8 million, funded from the bank commissioner fee fund and a consumer education settlement fund, and the agency's request for 114 full-time equivalent positions. Waddell said the FY2025 revised estimate is $4 below the amount approved by the Legislature; the paper changes include a $112,000 decrease in salaries and wages partially offset by an $85,000 increase in contractual services.
David Herndon, Kansas State Bank Commissioner (appearing by WebEx), told the committee a significant share of the contractual-services increase is a reserve for outside legal costs tied to the potential failure or liquidation of a Technology-Enabled Financial Institution (TEFI). "There is one TEFI in existence today and its performance has been, not as anticipated... Its parent company is, for all intents and purposes, financially insolvent," Herndon said. He said the TEFI Act was adopted by the 2021 Legislature and that the agency might need specialized outside counsel if a bankruptcy, trustee appointment or similar liquidation event occurs.
Jesse Becker, director of administration and finance for the agency, said the office is fee funded and noted a statutory requirement to transfer $100,000 from the bank fee fund to the state general fund each year. Becker also said the agency had a low vacancy rate (three vacancies, about 3%) and that the request includes routine inflationary adjustments.
Deputy or senior examiner staff explained why average examination costs have risen. Deputy Commissioner Tim Kim said the agency has shifted from abbreviated IT reviews to full IT examinations and added dedicated IT examiners. "We've since switched to a full IT exam for every bank, and we've added to our IT staff dedicated IT examiners," Kim said, noting the agency is spending more time on Bank Secrecy Act and anti-money-laundering areas and IT security as both the regulatory expectations and the technical complexity have increased.
Representative Rogers asked whether federal regulators were driving higher examination requirements; agency staff said the change reflects a general move to more comprehensive IT and AML work and the agency's decision to build in specialized capacity.
The committee voted to report the State Bank Commissioner's FY2025–FY2027 budget favorably to the House Committee on Appropriations.
Votes at a glance: The committee recorded a voice vote to report the bank commissioner's budget favorably; Representative White moved and Representative Roth seconded that motion, which carried by voice vote.
The committee will consider other agency budgets in upcoming meetings.
