OCC Report Identifies Key Risks Facing Federal Banking System

WASHINGTON—The Office of the Comptroller of the Currency (OCC) today reported the key issues facing the federal banking system in its Semiannual Risk Perspective for Spring 2023.

The OCC reported that the overall strength of the federal banking system is sound. The OCC has closely monitored the condition of the institutions it supervises throughout the market stress this spring and has engaged directly with its banks to ensure they are appropriately managing their risks and restoring confidence in the banking system.

The banking system faced increased volatility due to a liquidity crisis in the first quarter of 2023. Banks are focused on stabilizing liquidity and maintaining confidence in the banking system. Banks should remain diligent and maintain effective risk management practices over critical functions to continue to withstand current and future economic and financial challenges.

The OCC highlighted liquidity, operational, credit, and compliance risks, among the key risk themes in the report. Highlights from the report include:

• Liquidity levels have been strengthened in response to the failures of several banks and investment portfolio depreciation. Rising long-term rates caused significant depreciation in investment portfolios, focusing attention on banks’ liquidity risk profiles.
• Credit risk remains moderate in aggregate, but signs of stress are increasing, for instance in certain segments of commercial real estate. Overall, credit markets and loan portfolios remain resilient, and problem loan levels remain manageable. The persistent drag from high inflation and rising interest rates, however, is causing credit conditions to deteriorate.
• Operational risk is elevated. Cyber threats persist. Digitalization of banking products and services is expanding, especially as banks increase use of third parties. This expansion presents both opportunities and risks.
• Compliance risk is elevated. Banks continue to operate in a dynamic environment in which compliance management systems are challenged to keep pace with changing products, services, and delivery channel offerings developed in response to customer needs and preferences.

The report also highlights the OCC’s initiative on managing climate-related financial risks to the federal banking system and discusses the challenges and costs associated with the continued use of aging technologies and systems reaching their end of life and the importance of banks investing and aligning technology with their business goals.

The report covers risks facing national banks, federal savings associations, and federal branches and agencies based on data as of December 31, 2022, unless otherwise indicated. The report presents information in five main areas: the operating environment, bank performance, special topics in emerging risks, trends in key risks, and supervisory actions. The report focuses on issues that pose threats to those financial institutions regulated by the OCC and is intended as a resource to the industry, examiners, and the public.

Related Link

• OCC Semiannual Risk Perspective for Spring 2023 (PDF)