State Bank Commissioner office calls Kansas banking system "stable," flags oversight gaps for technology-enabled fiduciary firms and urges IT examiners remain独

The Office of the State Bank Commissioner told the Kansas Senate Committee on Financial Institutions and Insurance on Jan. 14 that the states banking industry is healthy and stable, while warning that statutory limits on oversight of Technology Enabled Fiduciary Financial Institutions (TEPIs) prevent the office from providing assurance about those entities' safety and soundness.

Jesse Becker, director of administration and finance and chief financial officer at the Office of the State Bank Commissioner, said the agency supervises 165 state-chartered banks, 31 bank trust departments and 12 separate trust companies that together manage about $210,000,000,000 in assets. Becker said the agency operates with 114 authorized full-time positions and three vacancies and is fee-funded, asking for a fiscal 2025 budget described in testimony as $13,757,000,000 (fee funded; no state general fund).

Becker said Kansas uses the CAMELS framework (capital, assets, management, earnings, liquidity and sensitivity) to rate institutions on a scale of 1 to 5 and that only a small share of state-chartered banks received ratings of 2, 3 or 4 at the end of 2024. He described a six-year trend of a declining number of state-chartered banks (down about 13% since 2019) while total bank assets in Kansas rose roughly 28% over the same period.

Why it matters: Becker told senators the combination of fewer banks and larger asset pools can concentrate risk and reinforces the need for robust oversight and information-technology examination capacity across the industry. He asked the committee for support for legislative updates to the banking and trust codes and for continued independence for the agencys IT examination unit.

TEPI oversight gap: Becker and the office emphasized that the Kansas TEPI Act (identified in testimony as the statute governing Technology Enabled Fiduciary Financial Institutions) imposes two statutory limitations that reduce the agencys ability to examine those entities comparably to other state-chartered banks: (1) the statute prevents the office from performing standard safety-and-soundness examinations of TEPIs, and (2) it requires inclusion of goodwill assets in TEPI capital calculations and prohibits the office from reviewing or assessing TEPI earnings. Becker said those directives "represent a significant departure" from the Uniform Financial Institutions Rating System and other interagency standards and from generally accepted accounting principles (GAAP), creating weaker and less comprehensive oversight for TEPIs.

IT examiners and cybersecurity: The OSBC told the committee its internal IT department performs both agency IT functions and specialized IT examinations for regulated entities. Becker said other states have indicated interest in adopting Kansass IT-examiner hiring model and that the office opposes merging its IT examiners into the state's centralized IT office because independence, he argued, is necessary to keep pace with fast-evolving cyber threats. Becker identified cybersecurity and coordinated, state-sponsored attacks on smaller community banks as top concerns, and said the agencys IT exams are a key preemptive tool.

Consumer and Mortgage Lending, earned-wage access and education grants: The Consumer and Mortgage Lending (CML) division licenses and examines roughly 12,000 non-depository companies and professionals, Becker said. He reported a recent 38% decline in mortgage loan originators over two years and noted the agency has received five applications from companies seeking to provide Earned Wage Access services in Kansas; the application deadline is in February. The office funds financial-education grants (paid from licensing fees and penalties); Becker said the grants have historically reached about 25,000 Kansans annually and in fiscal 2024 the office reported direct outreach to 29,947 Kansans and estimated 1.1 million impressions from recent mass-media campaigns. The office also funds a Financial Scholars scholarship contest for high-school seniors.

Planned and proposed legislation: Becker previewed agency-drafted legislative proposals the office plans to introduce or request support for this session, including (as described in testimony): adding deadlines for banks and trusts to report director changes, automatically voiding a bank charter upon a merger that dissolves the bank, updating the trust code to hold out-of-state trust companies operating in Kansas to the same standards as Kansas trust companies operating elsewhere, and simplifying requirements for bulk transfers of trust accounts to out-of-state institutions. Becker also reiterated the offices request that its IT examiners remain independent from the central state IT office.

Questions from the committee: Senators asked about the scholarship program and how the office calculated "impressions," which the agency described as estimated views of mass-media content on social platforms; the agency pointed senators to its website for scholarship details. Senators also asked whether legislation expanding trust reciprocity had affected trust assets in Kansas; the agency said one institutions acquisition accounted for the largest recent increase in trust assets. On earned-wage access, the office said the low number of applications so far is largely a matter of timing tied to the application deadline.

Ending: Becker closed by saying the office stands ready to work with the Legislature, asking for support on the described statutory changes and for continued discussions about IT-examiner independence. Bank Commissioner David Herndon joined briefly by WebEx and thanked the committee for the opportunity to appear.