Aug 01, 2016
From the Financial Reporting View
The Office of the Comptroller of the Currency (OCC) recently issued its Semiannual Risk Perspective (Spring 2016), which discusses the key risks facing the federal banking system.
The OCC sees signs of increasing credit risk due to strong loan demand combined with easing in underwriting standards. Supervisory examinations and industry surveys, including the OCC’s annual underwriting survey, observed easing in underwriting standards and practices in commercial lending as lenders reach for volume and yield. Credit concentrations have increased year over year primarily in commercial real estate loans, particularly multifamily loans, and in the financial services and energy-related industries. Indirect auto lending and leveraged lending also remain areas of concern for the OCC.
The key risk themes discussed by the OCC in the Spring 2016 report include:
- Strategic risk remains high for many banks, as management teams consider viable business models and search for sustainable ways to increase profitability or struggle to implement their strategic plans.
- Competitive pressure and continued strong credit risk appetites are driving lower underwriting quality and increased credit risk.
- Operational risk is high as banks adapt business models, transform technology and operating processes, and respond to increasing cyber threats.
- Compliance risk remains high as banks manage risks related to the Bank Secrecy Act and Anti-Money Laundering regulations, and implement changes to policies and procedures to comply with new mortgage lending requirements.
The OCC report also contains information about economic trends and conditions, banking industry financial and operating statistics, and regulatory actions.