OCC Report Examines Key Risks, Effects of COVID-19 Pandemic on Federal Banking System (2024)

FAQs

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

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.

The OCC has defined nine categories of risk for bank supervision purposes. These risks are: Credit, Interest Rate, Liquidity, Price, Foreign Exchange, Transaction, Compliance, Strategic and Reputation. These categories are not mutually exclusive; any product or service may expose the bank to multiple risks.

The findings indicate that the COVID-19 outbreak adversely impacts bank performance and stability. More specifically, we find that bank performance and stability are most negatively affected by the COVID-19 outbreak in smaller, undercapitalized, less diversified, foreign, and government-owned banks.

For FY 2024, examiners will focus on the impacts of volatile economic conditions such as high inflation, rising interest rates, and continuing recession possibilities. Examiners will also consider geopolitical events that may have adverse financial, operational, and compliance implications.

3 The OCC has defined eight categories of risk for bank supervision purposes: credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation. These categories are not mutually exclusive. Any product or service may expose a bank to multiple risks.

Interest rate volatility impacting margins. Technological disruptions in payment systems and banking technology. Data privacy issues and compliance with global data protection regulations. Challenges in adopting and integrating new technologies.

The OCC is required to conduct a full-scope, on-site examination of every national bank and Federal savings association at least once during each 12-month period.

The OCC ensures that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations.

The banks of greatest concern are Flagstar Bank and Zion Bancorporation, according to the screener. Flagstar Bank reported $113 billion in assets with a total CRE of $51 billion. The bank, however, only had $9.3 billion in total equity, making its total CRE exposure 553% of its total equity.

What is the biggest threat facing the banking industry today? ›

Summary. The major risks faced by banks include credit, operational, market, and liquidity risks.

However, high interest rates loom as a risk for community banks. “Preparing for the risk of rising interest rates is a fundamental responsibility of both bank managers and regulators”, says Michael Padhi, senior finance lecturer for the University of Maryland's Robert H. Smith School of Business.

The “fake lender” rule allows predatory lenders to ignore state interest rate laws merely by putting a rogue, out-of- state bank's name in the fine print. (Bank loans are generally exempt from state rate caps.)

Major risks for banks include credit, operational, market, and liquidity risk. Since banks are exposed to a variety of risks, they have well-constructed risk management infrastructures and are required to follow government regulations.