OCC Semiannual Risk Perspective, Spring 2013: Strategic Risk, Revenue Growth, Cyber-Threats, Expanding Reliance on Technology and Changing Regulatory Requirements

The Office of the Comptroller of the Currency (OCC) charters, regulates and supervises national banks and federal savings associations (banks) and supervises the federal branches and agencies of foreign banks. The OCC supervises these banks to ensure they operate in a safe and sound manner and comply with applicable laws and regulations, including those requiring fair treatment of consumers and fair access to credit and financial products.

The OCC’s Semiannual Risk Perspective addresses key issues facing banks. The OCC publishes the report twice a year, drawing upon midyear and end-year data. The spring 2013 report reflects data as of December 31, 2012. The report presents data in four main areas: the operating environment; the condition and performance of the banking system; funding, liquidity and interest rate risk; and regulatory actions.

Key Risk Themes

Strategic risk continues to increase and remains high for many banks as management searches for ways to generate acceptable returns

• Sound corporate and risk governance processes are central to planning, prioritizing and allocating resources efficiently in the current operating environment.
• New products and services may present unfamiliar risks for which some banks may lack the requisite expertise, management information systems and appropriate risk controls.

Revenue growth challenges from a slow economy continue to pressure profitability and increase the risk that banks may reach for yield

• The low interest rate environment also affects fiduciary and other asset management business lines in which revenues can significantly contribute to noninterest income. Continued risk aversion on the part of customers dampens asset management revenues and increases demand for fixed-income instruments, which in the current environment are subject to extension risk and declines in value.

Increasingly sophisticated cyber-threats, expanding reliance on technology and changing regulatory requirements are heightening operational risk

• Cyber-threats continue to increase in sophistication and require heightened awareness and appropriate resources to identify and mitigate the associated risks.
• The pace of new regulatory requirements can challenge the change-management capabilities of some banks and can lead to increased operational and compliance risks if banks do not adequately invest in control processes, systems or staff.
• Large and mid-size banks with extensive mortgage servicing operations have been making progress in remediating standards and practices, but the financial and reputational costs remain high.
• The consequences of business process engineering for lower operating costs may fall disproportionately on compliance, audit, risk management, operations or internal control mechanisms and may adversely affect a bank’s ability to identify, measure and control risks.

Source: OCC Semiannual Risk Perspective, Spring 2013


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