Department of Financial Institutions seeks staffing as industry grows; bankers back continuing-appropriation bill

The Senate Appropriations Committee heard testimony on Senate Bill 2008 on Tuesday as the Department of Financial Institutions outlined staffing and funding pressures tied to rapid growth in state-chartered banks and nonbank licensees.

Commissioner Lisa Cruz, Department of Financial Institutions, told lawmakers the agency “receives no general fund dollars” and is funded by assessments and fees on the institutions it regulates. Cruz said asset growth among state-chartered banks and credit unions, and the complexity of examinations — particularly for large banks and for cybersecurity and technology-related activities — require more examiners and specialist staff.

The department supervises state-chartered banks, credit unions, trust companies and a wide range of nondepository licensees, Cruz said, and noted trends she called relevant to the committee: banks have consolidated but increased branches and out-of-state activity, assets rose from about $43 billion to $49 billion in the last two years, and the number of nonbank consumer licenses increased about 18% from year-end 2022. She said the department has 35 full-time employees organized across Bismarck, Fargo and Grand Forks, and that a newly hired deputy for nondepositories, Jan Murtha, will begin February 3.

Why it matters: Cruz told the panel that stronger, better-resourced state supervision lessens the chance of federal intervention and preserves the state-charter option for local banks. She said some examinations now demand continuous, dedicated examiners for institutions over $10 billion in assets.

Representatives of the regulated industries testified in support of keeping the department locally funded but more flexible. Rick Kleberg, president and CEO of the North Dakota Bankers Association, told senators, “We support a $0 for Senate Bill 2,008,” and said his association also supports Senate Bill 2028, the continuing-appropriation measure that Cruz described. John Alexander of the Dakota Credit Union Association said state-chartered credit unions likewise back the bill and the $0 operating request in 2008.

Cruz described Senate Bill 2028 as a proposal to move the department to continuing appropriation, with the department’s appropriation set by the state banking and state credit union boards in a joint meeting and reported to the legislature. She said the model is similar to arrangements in Texas and Oklahoma and argued it would allow the department to respond faster to changes in the financial markets while preserving “guardrails” because industry-appointed boards would have incentives to control spending.

Committee questions focused on whether boards composed largely of regulated-industry members would create improper incentives; Kleberg told senators the industry has reasons to avoid weak regulation and he said federal regulators are less likely to intervene if the state regulator remains credible and well resourced. Cruz said the departments’ examiners typically take five years to reach full proficiency and she cited recent retirements and turnover as pressure points.

No formal committee action or vote was taken on SB2008 at the hearing; committee members discussed whether to hold the bill on the floor while SB2028 advances in the other chamber.

Ending: The committee closed the hearing on SB2008 and noted SB2028 was on the Senate calendar the same day. Witnesses left the committee materials and offered to answer follow-up questions as the budget and continuing-appropriation bill move forward.