• Comptroller of the Currency Releases Semiannual Perspective on Bank Risk
  • July 14, 2015 | Author: George A. LeMaistre
  • Law Firm: Jones Walker LLP - Mobile Office
  • On June 30, the Office of the Comptroller of the Currency released its Semiannual Risk Perspective, based on bank financial data as of year-end 2014.

    The publication is compiled twice every year by the OCC's National Risk Committee, which includes senior agency supervisory personnel as well as officials from the OCC's law, policy, accounting, and economics departments. An introductory page says the report focuses on issues "that pose threats to the safety and soundness of banks," and seeks to "assess opportunities and discuss the upside potential of those opportunities."

    The report finds that the principal sources of risk for community and midsize banks differ from those for large banks. Smaller institutions, the report says, face strategic risk as they seek "to respond to sluggish economic growth, low interest rates, and intense competitive pressures." Other sources of risk for smaller banks include management succession and retention of key staff; erosion of loan underwriting standards; exposure to customers engaged in energy production and distribution, as well as others in oil- and gas-related industries that have been affected by the precipitous declines in oil prices; and increasing exposure to interest-rate risk, and to the growing volume and sophistication of cyber threats and other IT vulnerabilities.

    Among the areas of risk for large banks, the report says, are "weaknesses and gaps within governance and enterprise risk management practices"; "a high level of operational risk across a spectrum of activities"; cybersecurity risks, including information- and data-security; elevated consumer compliance risks; and increased BSA/AML risk.

    The report notes that some banks, because of prolonged low interest rates, “have reached for yield to boost interest income with decreasing regard for interest rate or credit risk." It also says that among national banks with assets under $1 billion, the data show added levels of exposure to longer-term assets, where concentrations rose from 17 percent in 2006 to 32 percent through 2014.

    The report says vulnerability to cybersecurity risks and BSA/AML issues are matters of concern for banks of all sizes, although the form and nature of the risks presented may differ between smaller banks and larger banks, as a result of differences in the institutions' lines of business and principal sources of income.