Update from the OCC: Fall 2019 Semiannual Risk Perspective

Robert Phelps, Deputy Comptroller for Supervision System and Analytical Support, Office of the Comptroller of the Currency (OCC), Richard Taft, Deputy Comptroller for Credit Risk, OCC, and Christopher Downey, Technical Expert, OCC, shared highlights of the just released bellwether for credit risk and what it means for financial institutions during RMA's Risk Readiness Webinar.

Considered a guidepost for risk managers, the Semiannual Risk Perspective outlines the specific areas that regulators will focus on in the coming months. Issued in early December, the Fall 2019 report conveys findings the OCC has learned from working with banks throughout the country. Key themes facing the U.S. banking system include credit cycle risk management, cybersecurity, operational, and interest rate risk.

Overall, bank financial performance is sound, in part, because of a favorable credit environment and the longest economic expansion in U.S. history. Net income in the federal banking system grew 8.2 percent from the same period a year ago. Asset quality is strong and stable. Delinquent and nonperforming loans are below their long-term average. Phelps advised banks to prepare for a cyclical change now while credit performance remains strong. Interest rate risk is increasing due to recent volatility in market rates.

Operational risk is elevated as banks respond to an evolving and increasingly complex operating environment. This is due to increasing reliance on third-party service providers, consolidation of bank technology service providers, and LIBOR cessation by the end of 2021. Banks continue to seek M&A opportunities to scale growth and lower costs. Phelps advised banks to develop a detailed change management strategy that sufficiently addresses people, processes, and systems.

Cybersecurity continues to be a key concern as breaches and operational outages occur across all industries, including the financial sector. Banks should implement and maintain appropriate security tools and internal controls to protect their operations and sensitive data. Examiners note that the most common specific control deficiencies relate to patch management, network configuration, and access management. On January 16, 2020, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation issued a joint statement on heightened cybersecurity risk to remind supervised financial institutions of sound cybersecurity risk management principles. Read more here:

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