OCC Semiannual Risk Perspective

The OCC today released the Semiannual Risk Perspective for the Spring of 2024, which discusses the key risk themes facing the federal banking system. Highlights of the report include:

• Credit Risk is increasing. Commercial real estate (CRE) sectors, primarily the office sector and some multifamily property types, are experiencing stress due to a higher-rate environment and structural changes. Office and multifamily loans, particularly those with interest-only terms, set to refinance over the next three years pose additional risk. Sticky inflation and elevated interest rates may increase financial stress in some households and weigh on overall consumption growth.
• From a Market Risk perspective, net interest margins (NIMs) are under pressure due to strong deposit competition. However, trends observed indicate that pressure on funding costs and NIMs may be nearing a peak. The future direction, timing, and extent of rate movements and uncharted depositor behavior present risk management challenges. Wholesale funding usage continued to grow, albeit at a slower pace going into 2024. Investment portfolio depreciation improved, but unrealized losses remain elevated as banks continue to increase asset liquidity and interest rates remain elevated.
  
  
• Operational Risk is elevated. The financial industry is responding to an evolving and increasingly complex operating environment. Cyber threats continue as malicious actors target the financial services industry and their key service providers with ransomware and other attacks. Increasing digitalization, new and innovative product and service adoption, and third-party use increase bank operating environment complexity, creating both opportunities and risks. Continued check and wire transfer fraud and increased payment fraud incidents both underscore the importance of fraud risk management.