OCC Highlights Key Risks for Federal Banking System

Summary

The Office of the Comptroller of the Currency (OCC) reported operational, credit, and interest rate risks are among the key themes for the federal banking system in its Semiannual Risk Perspective for Fall 2019.

Highlights from the report include:

• Operational risk is elevated as banks adapt to a changing and increasingly complex operating environment. Key drivers elevating operational risk include the need to adapt and evolve current technology systems for ongoing cybersecurity threats.
• Credit risk has accumulated in many portfolios. Banks should prepare for a cyclical change while credit performance remains strong.  Preparation includes maintaining robust credit control functions, particularly credit review, problem loan identification and workout, collections, and collateral management.
• Recent volatility in market rates has led to increasing levels of interest rate risk. The complexity of asset/liability management is exacerbated by the recent yield curve inversions.
• The London InterBank Offered Rate (Libor) will likely cease to be an active index by the end of 2021. Accordingly, the OCC is increasing regulatory oversight of this area to evaluate bank awareness and preparedness.
• Banks face strategic risks from non-depository financial institutions, use of innovative and evolving technology, and progressive data analysis capabilities.

The report also highlights cybersecurity and technology management as a special topic in emerging risks.

The report covers risks facing national banks and federal savings associations based on data as of June 30, 2019. The report presents information in five main areas: the operating environment, bank performance, special topics in emerging risk, trends in key risks, and supervisory actions. It 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.