In its Semiannual Risk Perspective for Fall 2016, released this week, the U.S. Office of the Comptroller of the Currency (OCC) said U.S. banks face risks as well as challenges in growing revenues.
“Strategic risk remains high as banks consider business model changes and face challenges in growing revenue,” the report says.
To meet the evolving demands of consumers and the entrance of new competition, banks are developing more innovative products, services, and processes. Another key trend is banks are boosting loan volume by easing underwriting practices for commercial, commercial real estate, and auto lending. However, the risk levels are increasing due to risk layering, rising loan policy exceptions, increasing loan-to-value ratios, and weaker covenant protection.
Banks are also facing risks from changing cybersecurity threats and greater reliance on third-party relationships, and the need for governance. “Control breakdowns over the governance of retail product sales practices can erode trust in the banking system. Effective systems to detect and address fraud and possible unfair or deceptive practices in a timely manner, including effective complaint management systems, are critical,” the report says.
Other challenges include meeting the requirements of the Bank Secrecy Act, mortgage disclosure requirements, and the Military Lending Act.
The report, which focuses on issues that pose threats to the safety and soundness of those financial institutions regulated by the OCC, is based on data through June 30, 2016.