Operational and compliance risks are elevated at the nation’s banks, and credit risk – while moderate – shows signs of increasing stress, according to a report issued Wednesday by the regulator of national banks.
In its semiannual risk perspective for spring 2023 (SARP), the Office of the Comptroller of the Currency (OCC) said the overall strength of the federal banking system is sound. However, with operational and compliance risks, it noted key challenges raising the risk level.
“Cyber threats persist. Digitalization of banking products and services is expanding, especially as banks increase use of third parties,” the agency reported regarding operational risk. “This expansion presents both opportunities and risks.”
On compliance risk, the OCC asserted that banks’ compliance management systems are challenged to keep pace with changing products, services, and delivery channel offerings developed in response to customer needs and preferences.
Regarding credit risk, the agency said that credit markets and loan portfolios “remain resilient” and that problem loans remain manageable. However, the OCC indicated that trouble may be emerging in segments of the commercial real estate and consumer credit markets, noting that “signs of stress are increasing.”
In a statement, Acting Comptroller Michael Hsu said his agency will expect banks to be on the “balls of their feet” regarding risk management, “just as our examiners are.” In particular, the acting comptroller urged banks to guard against a false sense of comfort from the “recent relative stability in bank markets and from the benign credit performance data over the course of the pandemic.”
Hsu also urged banks to:
- re-evaluate exposures, especially asset and liability concentrations, across a range of scenarios,
- take actions to preserve capital and maintain strong liquidity consistent with each bank’s risk profile,
- maintain discipline and strong risk management across all risk areas, not just in response to headlines, and
- prepare to communicate clearly, credibly, and promptly about their condition and risk profile should questions arise from customers, investors, depositors, and other stakeholders.