OCC Report Details Risks and Effects of Pandemic on Federal Banking System

The Office of the Comptroller of the Currency (OCC) recently released its “Semiannual Risk Perspective for Spring 2021”  which highlights the main issues surrounding the effects of the COVID-19 pandemic on the federal banking industry. The key risk themes in the report include credit, strategic, operational, and compliance risks.

The report found that while banks maintained sound capital and liquidity levels, profitability remained strained because of low loan growth and low interest rates. The low interest rate environment was highlighted as a special topic in emerging risks.

The OCC found that heightened credit risk is transitioning while the economic downturn continues to affect borrowers’ taking care of debts, but assistance and stimulus programs have suppressed past-due levels. As banks try to improve earnings, they may implement measures like cost cutting, which would further increase credit risk or prolong duration.

The report also found that operational risk is elevated due to increasing cybersecurity threats, as well as a complex operating environment. Additionally, compliance risk is heightened due to banks’ increasing efforts to establish assistance programs that would challenge and change management, product, and service risk management practices.

The OCC’s report presents data in five main areas: bank performance, the operating environment, special topics in emerging risk, supervisory actions, and trends in key risks. It is intended as a resource to the industry, examiners, and the public, and focuses on issues that may threaten institutions regulated by the OCC.

Click here to view the report.