In its Semiannual Risk Perspective for Spring 2018 (the "Report"), the Office of the Comptroller of the Currency reiterated several key risks facing the federal banking system and expressed concern over the impact of rising interest rates.
In the Report, the OCC described improved financial performance of banks year over year and "incremental improvement in banks' overall risk management practices." The OCC noted that risks have not changed greatly since its previous report from Fall 2017. As stated, those risks are associated with:
- incremental easing in commercial credit underwriting practices;
- bank risk management of cybersecurity threats;
- third-party concentration risk for certain products and services;
- complex money-laundering and terrorism-financing methods that pose challenges in complying with the Bank Secrecy Act; and
- weaknesses in compliance programs for consumer protection.
In the Report, the OCC added to its list certain risks associated with the "potential effects of rising interest rates, increasing competition for retail and commercial deposits, and post-crisis liquidity regulations for banks with total assets of $250 billion or more, on the mix and cost of deposits."
In addition, concerns over integrated mortgage disclosure contained in the previous report were downgraded from comprising a key risk to an issue that should be monitored.
The OCC also stated that it is monitoring emerging risks including those associated with:
- concentrations of commercial real estate;
- low or declining prices for grain, livestock, and dairy that result in lower cash flow and increased farm carryover debt for agricultural borrowers; and
- challenges to compliance management systems as banks address changes to consumer compliance requirements.
The Report is based on data collected as of March 31, 2018.
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