OCC Highlights Significant Risks to the Banking System

The Office of the Comptroller of the Currency ("OCC") reviewed key risks facing the federal banking system.

In its "Semiannual Risk Perspective for Spring 2024," the OCC made the following observations:

• Credit risk is increasing, particularly in the commercial real estate industry as a result of "a higher-[interest] rate environment and structural changes" that affect the office and multifamily property sectors.
• Market risk is increasing due to additional pressure on net interest margins and funding costs, which "may be nearing a peak." The OCC said that rate movements and depositor behavior are unpredictable and expressed concern that banks continue to lose money in their investment portfolios, in addition to their existing substantial unrealized losses.
• Operational risk is increasing as a result of complex and evolving cyber threats, payment fraud incidences, complex third-party services and check and wire fraud.
• Compliance risk is increasing on Bank Secrecy Act requirements given technology developments (AI) which have increased fraud incidences, and on Community Reinvestment Act requirements because of "changing customer needs and preferences related to products, services, and delivery channels."
• Climate risk remains a high priority as banks are still in the "early stage[s] in analyzing the effects of insurance affordability and availability challenges." The OCC noted that it is engaging with banks holding at least $100 billion in assets on risk management programs. The OCC urged banks to avoid complacency as it develops climate change risk management programs.