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    OCC Assesses Risk Environment, Revises HMDA Examination Procedures

    December 17, 2021

    The Office of the Comptroller of the Currency (OCC) published the Semiannual Risk Perspective for Fall 2021. The report covers risks facing national banks and federal savings associations based on data as of June 30, 2021. The report presents assessment of the operating environment and bank performance, special topics on community banks, trends in key risks, and supervisory actions. The key risk themes facing the federal banking system are operational, credit, compliance, and strategic risks. The report also highlights an OCC initiative to act on the risk that climate change presents to the federal banking system. In addition, OCC revised the interagency Home Mortgage Disclosure Act (HMDA) examination procedures for determining compliance with HMDA and its implementing regulations. The Chief Counsel of OCC issued an Interpretive Letter which clarified and elaborated on aspects of prior interpretive letters addressing cryptocurrency and trust activities.

    Semiannual Risk Perspective Report

    The report addresses key issues facing banks, focusing on risks that pose threats to the safety and soundness of banks and their compliance with applicable laws and regulations. According to the report, banks are showing resilience in the current environment with satisfactory credit quality and strong earnings, but weak loan demand and low net interest margins continue to weigh on performance. The following are the key highlights from the report:

    • Operational risk is elevated as banks respond to an evolving and increasingly complex operating environment and cyber risks.
    • Credit risk is moderate as widespread government programs and appropriate risk management limited the potential credit impact, though some areas warrant continued attention.
    • Compliance risk is heightened, driven by regulatory changes and policy initiatives that continue to challenge risk management.
    • Strategic actions taken by banks to offset earnings impacts of low yields and net interest margins compression remain a risk.

    Revisions to interagency HMDA examination procedures

    The revised procedures address changes to the effective dates for banks that meet or exceed either the closed-end mortgage loans or the open-end lines of credit loan-volume threshold in each of the two preceding calendar years:

    • Effective July 01, 2020, a bank, savings association, or credit union that originated at least 100 closed-end mortgage loans in each of the two preceding calendar years, or originated at least 500 open-end lines of credit in each of the two preceding calendar years meets or exceeds the loan-volume threshold.
    • Effective January 01, 2022, when the temporary threshold of 500 open-end lines of credit expires, a bank, savings association, or credit union that originated at least 100 closed-end mortgage loans in each of the two preceding calendar years, or originated at least 200 open-end lines of credit in each of the two preceding calendar years meets or exceeds the loan-volume threshold.

    The revised procedures also address changes to a partial exemption to apply to an application or covered loan (including a purchased covered loan). An eligible bank must meet the applicable loan-volume threshold:

    • A partial exemption applies to an eligible bank’s applications for, originations of, and purchases of closed-end mortgage loans if the bank originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years.
    • A partial exemption applies to an eligible bank’s applications for, originations of, and purchases of open-end lines of credit if the bank originated fewer than 500 open-end lines of credit in each of the two preceding calendar years.

    Clarification regarding cryptocurrency activities 

    The letter clarifies that the cryptocurrency activities discussed in prior letters are legally permissible for national banks and federal savings associations (collectively, banks), provided the bank can demonstrate, to the satisfaction of its supervisory office, that it has controls in place to conduct the activity safely and soundly. Specifically, a bank should notify its supervisory office, in writing, of its intention to engage in any of the cryptocurrency activities addressed in the prior interpretative letters and should not engage in the activity until it receives written non-objection from the supervisory office. The supervisory office will evaluate the adequacy of a bank’s risk management systems and controls as well as risk measurement systems to enable the bank to engage in the proposed activities safely and soundly and in compliance with all applicable laws.

     

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    Keywords: Americas, US, Banking, COVID-19, Operational Risk, Credit Risk, Semiannual Risk Perspective, HMDA, Lending, Mortgage Lending, Cryptocurrencies, OCC

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