Strategic, credit, operational and compliance risks remain top concerns facing national banks, according to a report by the Office of the Comptroller of the Currency.
The OCC’s Semiannual Risk Perspective for Fall 2016, released Jan. 5, covers risks facing national banks and federal savings associations based on data through June 30, 2016. It focuses on issues that pose threats to the safety and soundness of those financial institutions regulated by the OCC and is intended as a resource to the industry, examiners and the public, according to an OCC news release.
In remarks about the risk perspective report, Comptroller of the Currency Thomas J. Curry said “the overall condition of the federal banking system is sound with financial performance relatively unchanged year-over-year.”
“Since the crisis, we’ve seen improvement in banks of all sizes with the return on equity at community banks nearly recovering to pre-crisis levels,” Curry said in his remarks.
Despite the relative strength of the banking system, Curry added that “we must be vigilant now against risks accumulating in the system and we must avoid rolling back safeguards that have helped the system recover.”
According to the OCC release, highlights from the report include:
• Strategic risk remains high as banks consider business model changes and face challenges growing revenue. “Banks are adopting more innovative products, services and processes in response to the evolving demands for financial services and the entrance of new competitors, such as out-of-market banks and financial technology firms,” Curry said in his remarks. “In addition, some banks are considering business model changes, including mergers and acquisitions, as they search for acceptable returns in a prolonged environment of low interest rates.”
• Banks continue to ease underwriting practices to boost loan volume and to respond to competition from bank and nonbank lenders. These practices are evident in commercial, commercial real estate and auto lending.
• Operational risk remains a concern as banks face changing cybersecurity threats, increased reliance on third-party relationships, and the need for sound governance over sales practices. “Well-publicized breaches have made cybersecurity a household topic, and banks and regulators must continuously up their game to protect against the latest cyber attack and ensure they are capable of maintaining their operations and recovering in the event that an attack should occur,” Curry said in his remarks.
• Banks face challenges meeting the integrated mortgage disclosure requirements and amended Military Lending Act regulatory requirements, as well as managing Bank Secrecy Act risks.
The full report can be read by clicking here.
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