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
APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.
EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).
HM Treasury notified that, after considering all responses, the government intends to bring forward further legislation, when the Parliamentary time allows, to address issues identified in the consultation on supporting the wind-down of critical benchmarks.
EIOPA launched the 2021 stress test for the insurance sector in EU.
UK authorities jointly published the third edition of Regulatory Initiatives Grid setting out the planned regulatory initiatives for the next 24 months.
EC is requesting feedback on the proposed Commission Delegated Regulation on the content, methodology, and presentation of information that large financial and non-financial undertakings should disclose about their environmentally sustainable economic activities under the Taxonomy Regulation.
OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.
Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.
ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.
EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.