In its semi-annual review of key risks in the banking system, the Office of the Comptroller of the Currency (OCC) highlighted credit, operational, compliance, and market risks.
Highlights from the report include:
- Operational risk is elevated. Banks continue to respond to an evolving and increasingly complex operating environment. Evolving cyber threats by sophisticated malicious actors target the financial services industry and their key service providers. Recent significant disruptions across many sectors, including the financial sector, highlight the importance of sound third-party risk management and operational resilience.
- From a compliance risk perspective, banks continue to operate in a dynamic banking environment as customers’ needs and preferences related to products, services, and delivery channels evolve. It remains important for banks to maintain appropriate risk-based compliance risk management frameworks capable of growing and transforming as their risk profiles change. Banks should perform timely investigations of fraud and unauthorized transaction disputes and resolve them in accordance with applicable laws. Data governance gaps as well as customer or transaction exclusions in Bank Secrecy Act and anti-money laundering (BSA/AML) transaction monitoring may result in increased noncompliance with requirements to report potentially suspicious activity.
- Regarding market risk, banks net interest margin (NIM) performance has varied across bank asset sizes. Bank funding costs trended higher throughout 2024 but at a slower pace compared with 2023. Funding cost trends have had mixed impacts on NIMs due to trends in earning asset yields. Deposit volumes, deposit mix, and wholesale funding usage have started to stabilize while banks build asset liquidity.
- Commercial credit risk remains moderate and shows signs of stabilizing as risks are better identified, monitored, and controlled. Commercial credit risk drivers indicate the presence of pockets of risk specific to a lender’s region and lending market. The commercial real estate (CRE) office sector remains stressed. Risks in multifamily CRE lending remain elevated, particularly in the luxury segment.