In the latest issue of Supervisory Insights, the FDIC Division of Risk Management Supervision ("DRMS") summarized its observations on "oil price volatility and bank performance."
In the article titled "Oil Price Volatility and Bank Performance: A View from the Supervisory Process," the DRMS said that:
- banks with substantial direct lending exposure to the oil and gas ("O&G") sector saw "greater increases in problem assets than other banks";
- banks might have indirect exposure to stress within the O&G sector if they function in certain areas with high concentrations of O&G activity;
- only a small number of FDIC-supervised banks had supervisory concerns due to impacts from volatile oil prices;
- banks in O&G areas had above-average growth during the boom period;
- common weaknesses in risk management frameworks include O&G lending exposures not being covered in loan policies, indirect O&G exposures not being tracked or monitored, and qualitative allocations for O&G exposures not considered in a bank's allowance for loan and lease losses analysis;
- lending to the support and service sector consisted of the largest share of their O&G direct lending;
- the majority of direct O&G lending was in larger banks;
- banks that experienced the most stress were more likely to be partaking in higher volumes of O&G lending; and
- oil prices rebounded in 2017 and during the first quarter of 2018.
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