OCC Reports on Elevated Risks for Banks Amid Improving Economic Prospects

In its Spring 2021 Semiannual Risk Perspective report, the OCC concluded that while banks maintained "sound capital and liquidity levels in 2020," the combination of low interest rates and limited demand for loans continues to stress bank profitability. Further, the OCC highlighted that "increasing business and consumer confidence, vaccinations, and higher employment levels are improving economic prospects for 2021 and 2022."

The report described:

• improved financial conditions in the first quarter of 2021;

• key bank financial performance indicators and the impact of lower interest rates;

• elevated credit risks (including from borrowers' ability to service debt resulting from the pandemic);

• heightened strategic risks with respect to banks' management of net interest margin compression;

• increased operational risks resulting from a "complex operating environment" and "increasing cybersecurity threats"; and

• compliance risks resulting from banks' expedited efforts to implement assistance programs.