Featured Product

    OCC Report Examines Key Risks for Federal Banking System

    May 20, 2019

    OCC published the Semiannual Risk Perspective for Spring 2019. The report addresses key issues facing banks, focusing on those that pose threats to the safety and soundness of banks and their compliance with the applicable laws and regulations. The report highlights key risk themes, including credit, operational, compliance, and interest rate risk, in addition to the strategic risk arising from innovations in financial technology.

    The report, which is based on data as of December 31, 2018, presents information in five main areas: the operating environment, bank performance, special topics in emerging risks, trends in key risks, and supervisory actions. It focuses on issues that pose threats to the financial institutions regulated by OCC and is intended as a resource to the industry, examiners, and the public. The report highlights that financial performance of banks making up the federal banking system strengthened in 2018. The financial services sector also continues to experience rapid growth in fintech and regtech. The following are the key highlights from the report: 

    • Credit quality remains strong. However, as per OCC, banks should have appropriate risk management practices in place in case of a potential cyclical downturn. OCC keeps reminding bankers and examiners to assess the quality and timeliness of credit risk identification, risk mitigation, and loan-loss reserve methodology.
    • Operational risk is elevated as banks adapt to a changing and increasingly complex operating environment. Key drivers for operational risk include persistent cyber-security threats, innovation in financial products and services, and increasing use of third parties to provide and support operations that are not effectively understood, implemented, and controlled.
    • Compliance risk related to Bank Secrecy Act/anti-money laundering (BSA/AML) remains high.
    • Interest rate risk and the related liquidity risk implications pose potential challenges to earnings, given the uncertain rate environment, competitive pressures, changes in technology that have made it easier for customers to move funds, and untested depositor behavior after an extended low-rate environment. 

    The special topics section in the report examines the impact of financial innovation in the elevation of strategic risk for banks. Rapid technological changes in the industry are forcing banks to reevaluate their business strategies. OCC has observed substantial variance in adoption of innovation—by technology type and by bank size—in the federal banking system. Some banks are combining resources through consortia and making other collaborative arrangements to share the cost of developing and acquiring new technologies. Others have increasingly relied on third-party service providers or fintech relationships to enable more efficient and effective operations and deliver innovative products. Still others continue to take a wait-and-see approach, though a slow-adopter strategy adds risk because the speed of change, combined with the lengthy process to evaluate and implement newer technology solutions, can result in loss of customers or market share before the bank can respond. The challenge of adapting to the current environment may prove difficult for banks lacking the financial resources to invest in technology. Yet some smaller banks looking to innovative solutions may find their business models more nimble and adaptable to collaboration with a nonbank firm to strengthen bank operations and customer acquisition.

     

    Related Links

    Keywords: Americas, US, Banking, Semiannual Risk Perspective, Credit Risk, Operational Risk, Compliance Risk, Interest Rate Risk, Fintech, Regtech, OCC

    Related Articles
    News

    EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package

    EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.

    February 26, 2021 WebPage Regulatory News
    News

    EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway

    The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.

    February 25, 2021 WebPage Regulatory News
    News

    PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks

    In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.

    February 25, 2021 WebPage Regulatory News
    News

    FSB Sets Out Work Priorities for 2021

    In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.

    February 25, 2021 WebPage Regulatory News
    News

    EU Publishes Corrigendum to Revised Capital Requirements Regulation

    EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).

    February 25, 2021 WebPage Regulatory News
    News

    ESAs Issue Statement on Application of Sustainability Disclosures Rule

    ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).

    February 25, 2021 WebPage Regulatory News
    News

    EC Consults on Crisis Management and Deposit Insurance Frameworks

    EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.

    February 25, 2021 WebPage Regulatory News
    News

    HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs

    HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.

    February 24, 2021 WebPage Regulatory News
    News

    EBA Proposes Standards for Supervisory Cooperation Under IFD

    EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.

    February 24, 2021 WebPage Regulatory News
    News

    BoE Addresses Banks in Scope of First Resolvability Assessment

    BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.

    February 24, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6629