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December 03, 2018

OCC published the Semiannual Risk Perspective for Fall 2018. OCC reported credit, operational, compliance, and interest rate risks to be the key themes for the federal banking system.

The report addresses key issues facing banks, focusing on those that pose threats to the safety and soundness of banks and their compliance with applicable laws and regulations. It presents data 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 OCC and is intended as a resource to the industry, examiners, and the public. The following are the key highlights from the report:

  • Credit quality remains strong, but OCC is monitoring the origination quality of new loans, the potential for increased lender complacency within credit risk identification and management, and the potential embedded risks from successive years of eased underwriting.
  • Operational risk is elevated as banks respond to an evolving and increasingly complex operating environment.
  • Compliance risk is elevated as banks manage money laundering risks and comply with amended consumer protection requirements.
  • Rising interest rates and increased competition for deposits may result in changes in funding mix or costs.

The report also highlights the emerging risk posed by the growth in nonfinancial corporate debt and includes a credit underwriting assessment supplement. Other issues that warrant awareness among bankers and examiners include incremental easing in commercial credit underwriting practices; concentrations of commercial real estate (CRE) and the need for sound concentration risk management; and CECL implementation, which may pose operational and strategic risk to some banks when measuring and assessing the collectability of financial assets. The Fall 2018 report reflects bank data as of June 30, 2018. 

 

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Keywords: Americas, US, Banking, Semiannual Risk Perspective, Credit Risk, Operational Risk, Concentration Risk, Compliance Risk, OCC

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