Banks’ financial condition is strong and they are well-positioned to “deal with the economic headwinds arising from geopolitical events, higher interest rates and increased inflation,” according to the OCC’s Semiannual Risk Perspective report for spring 2022 issued today. The report addresses key topics facing banks, focusing on those that pose threats to safety and soundness and compliance with laws and regulations.
This year’s spring report presents data in five main areas: operations, bank performance, special topics, trends in key risks and supervisory actions. The report noted that bank financial performance faces challenges from inflation, a rising interest rate environment and other factors related to the pandemic and geopolitical events. Operational risk is elevated as banks respond to an evolving and increasingly complex operating environment, and geopolitical tensions have elevated cyber risks globally. Compliance risk also is heightened as banks navigate the current operational environment, geopolitical risks, regulatory changes and policy initiatives. Credit risk remains moderate, with some areas of weakness and potential longer-term implications resulting from the pandemic as well as direct and indirect effects of the Russian invasion of Ukraine.
Across all key risk areas, staffing is a big issue, with banks experiencing challenges retaining and replacing staff, especially employees with specialized experience. “During this period of increasing volatility, these staffing challenges present increased risks,” according to the report.
The OCC “will continue to monitor the development of climate-related financial risk management frameworks” at large banks, which are “in the early stages” of building their frameworks, the report noted. “OCC large-bank examination teams will integrate the examination of climate-related financial risk into supervision strategies and continue to engage with bank management to better understand the challenges banks face in this effort, including identifying and collecting appropriate data and developing scenario analysis capabilities and techniques.”