The OCC is focusing on credit risk, compliance risk and strategic risk as its top supervisory priorities at community and midsize banks, according to the agency’s Semiannual Risk Perspective report released today. For larger banks, compliance, governance and operational risks remain dominant concerns, the agency said.
With ongoing concerns about Bank Secrecy Act compliance and a wave of new regulatory requirements recently implemented or coming due, compliance risk has been elevated, the agency said. “Evolving compliance risks and increasing complexity of the risk environment present significant challenges for bank compliance risk management systems,” said Acting Comptroller Keith Noreika. “Some banks also face change management challenges as they adapt to new or amended consumer-focused regulations.” These rules include amendments to the Military Lending Act, the TILA-RESPA integrated disclosures and the Home Mortgage Disclosure Act.
While credit risk remains elevated, slowing loan growth has left it “relatively stable overall,” Noreika said. Easing in underwriting standards slowed in the second half of 2016, but “risk layering” continued. The agency also noted growing credit concentrations, especially in commercial real estate. A year after raising concerns about the “notable and unprecedented growth” in auto lending — with total loan volume growing by 50 percent since 2010 — the agency today “re-characterized [auto loans]from a key risk issue to an issue warranting continued monitoring.” The higher risk is now materializing in delinquencies, the OCC reported.
Strategic risk remains high for smaller and midsize banks, which continue to struggle with increased nonbank competition (from marketplace lenders, for example), merger trends, the persistent low-rate environment and governance issues. Larger banks, however, “continue to improve the effectiveness of their processes and controls to address strategic risk,” the OCC said.