OCC Reports Key Risks, Effects of COVID-19 in Federal Banking System

Summary

The Office of the Comptroller of the Currency (OCC) today reported the key issues facing the federal banking system and the effects of the COVID-19 pandemic on the federal banking industry in its Semiannual Risk Perspective for Fall 2020.

Banks remain in strong financial condition but profitability is stressed due to low interest rates and increasing levels of provisions for problem loans. The OCC reported credit, strategic, operational, and compliance risks, among the key risk themes in the report.

Highlights from the report include:

• Credit risk is increasing as the economic downturn impacts customer ability to service debts.
• Strategic risk is an emerging issue due to the historically low rate environment, potential credit stress and their effect on bank profitability.
• Operational risk is elevated as financial institutions respond to altered work environments and an evolving and complex operating environment. Cybersecurity threats contribute as a key driver of the heightened operational risk environment.
• Compliance risk is elevated due to a combination of altered work environments, and the requirement to quickly operationalize federal, state, and proprietary programs designed to support businesses and consumers.

The report also highlights emerging trends in payment products and services as a special topic in emerging risks.