In its Semiannual Risk Perspective for Spring 2019, the Office of the Comptroller of the Currency (OCC) outlined the key themes and risks for the federal banking system.
The report said credit quality is strong when measured by traditional performance metrics. However, it points out that successive years of growth, incremental easing in underwriting, risk layering, and building credit concentrations could result in accumulated risk in loan portfolios.
Also, it said that operational risk is elevated as banks adapt to a changing and increasingly complex operating environment. Some of the key drivers for operational risk include persistent cybersecurity threats as well as innovation in financial products and services. In addition, another driver is the increasing use of third parties to provide and support operations that are not effectively understood, implemented, and controlled.
Further, the report found that compliance risk related to Bank Secrecy Act/Anti-Money Laundering (BSA/AML) is high as banks remain challenged to manage money laundering risks. Additionally, interest rate risk and the related liquidity risk implications pose potential challenges to earnings given the uncertain rate environment, competitive pressures, changes in technology, and untested depositor behavior.
Among a variety of other topics, the report also highlights financial innovation and related impacts on strategic risk.
The report covers risks facing national banks and federal savings associations based on data as of year-end 2018. It focuses on issues that pose threats to financial institutions regulated by the OCC.