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
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleFED Publishes Financial Stability Report in November 2020
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.
The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.
The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.
The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.
The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.
The Australian Prudential Regulation Authority (APRA) updated the list of authorized deposit-taking institutions, granting license to Barclays Bank PLC and Crédit Agricole Corporate and Investment Bank to operate as foreign authorized deposit-taking institutions under the Banking Act 1959.
EU published, in the Official Journal of the European Union, a corrigendum to the Delegated Regulation 2015/35, which supplements Solvency II Directive (2009/138/EC).
The European Banking Authority (EBA) published an Opinion on the scale and impact of de-risking in European Union and the steps that competent authorities should take to tackle unwarranted de-risking.