As banks continue to face competitive pressures in their markets, the OCC is focusing on credit, operational and compliance risk as its top supervisory priorities, according to the agency’s Semiannual Risk Perspective report released today.
While asset quality and underwriting remain strong overall, increased competition, tighter spreads and slowing loan growth have driven some banks to ease their underwriting practices and build concentrations in certain loan portfolios — such as commercial real estate — that could leave them more vulnerable to economic shocks, the OCC said. Consistent with previous years, the percentage of banks that reported easing underwriting standards outpaced those that reported tightening.
On the operational side, the report noted that increasing cybersecurity threats targeting bank personnel, processes and technology have driven banks to make changes to their business models, technology and procedures, which can also lead to elevated risk. The need to innovate has led to more partnerships between banks and third-party fintech companies or vendors, driving third-party risk. The report also noted that consolidation — both among banks and among service providers — has “increased reliance on a smaller group of third parties providing critical applications and resulted in large numbers of banks, especially community banks, relying on a small number of service providers.”
As noted in the previous semiannual risk report, compliance risk also continues to be an ongoing concern, particularly as banks continue to adopt new technologies to help them comply with numerous regulations, including new Bank Secrecy Act requirements, amendments to the Military Lending Act, the TILA-RESPA integrated disclosures and the Home Mortgage Disclosure Act.
