OCC published the Semiannual Risk Perspective for Fall 2020. The report assesses risks facing national banks and federal savings associations based on data as of June 30, 2020. The report presents information in four main areas: the operating environment, bank performance, special topics in emerging risk, and trends in key risks. The key risk themes facing the federal banking system are credit, strategic, operational, and compliance risks. The report also mentions emerging trends in payment products and services as a special topic in emerging risks.
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. According to the report, banks remain in strong condition with sound capital and liquidity levels. Bank profitability is stressed due to low interest rates and increasing levels of provisions for problem loans. OCC reported credit, strategic, operational, and compliance risks among the key risk themes in the report. The following are the key highlights from the report:
- Credit risk is increasing as the economic downturn impacts customer ability to service debts.
- Strategic risk is an emerging issue due to the historically low rate environment, potential credit stress, and their effect on bank profitability.
- Operational risk is elevated as financial institutions respond to altered work environments and an evolving and complex operating environment. Banks adjusted operating models to accommodate large-scale telework but are having to manage the complexities of unique security and internal control challenges. Cybersecurity threats contribute as a key driver of the heightened operational risk environment.
- Compliance risk is elevated due to a combination of altered work environments, and the requirement to quickly operationalize federal, state, and proprietary programs designed to support businesses and consumers. Banks have expedited the implementation of assistance programs, which elevated compliance risk.
Keywords: Americas, US, Banking, COVID-19, Operational Risk, Credit Risk, Semiannual Risk Perspective, Cyber Risk, OCC
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