OCC Report Examines Key Risks, Effects of COVID-19 Pandemic on Federal Banking System

Summary

The Office of the Comptroller of the Currency (OCC) today reported the key issues facing the federal banking system and the effects of the COVID-19 pandemic on the federal banking industry in its Semiannual Risk Perspective for Spring 2021.

Highlights from the report include:

• Credit risk is elevated and transitioning as the economic downturn continues to affect some borrowers’ ability to service debts. Assistance programs and federal, state, and local stimulus programs have suppressed past-due levels.
• Strategic risks associated with banks’ management of Net Interest Margin (NIM) compression and efforts to improve earnings is elevated. Banks attempting to improve earnings may implement measures including cost cutting, increasing credit risk (both credit and investments) or extending duration.
• Operational risk is elevated due to a complex operating environment and increasing cybersecurity threats.
• Compliance risk is elevated as banks’ expedited efforts to implement assistance programs continue to challenge established change management, product, and service risk management practices.

The report also highlights the low interest rate environment as a special topic in emerging risks.