In its Semiannual Risk Perspective for Spring 2020, the OCC highlighted elevated compliance, operational and credit risks faced by the federal banking industry.
The OCC asserted that a "rapid decline in economic conditions [due to the COVID-19 pandemic] will broadly affect bank earnings, credit quality, operations, and capital," but that "market risk volatility [has] stabilized since the beginning of the pandemic as the creation of numerous Federal Reserve funding facilities improved market liquidity."
The OCC identified the following risks:
- "[b]ank profitability will be challenged as interest rates are at historic lows, past due loans and provisions for loan losses are increasing, and operational expenses are rising;
- [r]ecord high unemployment levels and business closings will stress credit risk management;
- [o]perational risk is elevated with banks implementing new processes and procedures, adopting pandemic related continuity plans, and responding to increased fraud and cyber risk; and
- [c]ompliance risk is increasing due to new assistance programs for consumers and small businesses, resulting in high call volumes and reassigned staff implementing new practices and procedures."
The OCC specifically emphasized heightened compliance risk as having the potential to develop into a key risk, and noted that it "warrants awareness among bankers and examiners."
The report was prepared from April through early June, and reflects the risks the federal banking industry is facing based on data as of December 31, 2019.
Primary Sources
- OCC Press Release: OCC Highlights Key Risks for Federal Banking System
- OCC Report: Semiannual Risk Perspective Spring 2020
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