The OCC released its Semiannual Risk Perspective for Spring 2016, which reveals that strategic, credit, operational, and compliance risk remain top concerns, with interest risk following closely. While the OCC is not a regulatory agency for credit unions, it does oversee national banks and federal savings associations, and provides a perspective on industry trends.
The report highlights key risk issues facing the federal banking system. Broadly, the key risk issues remain consistent from the fall 2015 report with strategic, credit, operational, and compliance risk remaining top concerns with interest rate risk warranting continued monitoring. The report discusses how specific aspects of these risks continue to evolve.
Strategic risk remains an ongoing concern. Banks are several years into the risk accumulation phase of the economic cycle. The banking environment continues to evolve, with growing competition among banks, nonbanks, and financial technology firms. Banks are increasingly offering innovative products and services, enabling them to better meet the needs of their customers. While doing so may heighten strategic risk if banks do not use sound risk management practices that align with their overall business strategies, failure to innovate to meet evolving needs or financial services may place a bank at a competitive disadvantage.
Credit risk is increasing because of strong loan growth combined with easing in underwriting standards. More specifically, indirect auto lending and leveraged lending remain concerns, with CRE concentration risk management moving from a monitoring status to an area of additional emphasis. Operational risk remains elevated as banks deal with changing threats to cybersecurity and increasing reliance on third-party relationships. Bank Secrecy Act (BSA) and compliance risk management remain complex areas to manage and continue to pose challenges as banks implement systems to address changes in technology and comply with new rules. Specifically, implementation of the integrated mortgage disclosures under the Truth in Lending Act, which became effective October 3, 2015, is a key risk. Implementation of the new requirements under the amended Military Lending Act (MLA) regulation, which has an effective date of October 3, 2016, was added as a key risk.
Credit union policy makers should review the report to identify evolving risks and potential impacts on the credit union.
