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OCC: Compliance risk management rising as agency supervisory priority

Last Friday the OCC published its Semiannual Risk Perspective report highlighting its focus on credit risk, compliance risk and strategic risk as the agency's top supervisory priorities at community and midsize banks. For larger banks, compliance, governance and operational risks remain dominant concerns, the agency said.

“Evolving compliance risks and increasing complexity of the risk environment present significant challenges for bank compliance risk management systems,” said the Acting Comptroller of the Currency Keith Noreika. “Some banks also face change management challenges as they adapt to new or amended consumer-focused regulations.” 

Noreika also said that, while credit risk remains high, a slow-down in loan growth has left credit risk “relatively stable overall.” He also pointed out that “[e]asing . . . underwriting standards slowed in the second half of 2016, but risk layering” continued.

The agency also expressed its concern about growing credit concentrations, especially in commercial real estate. A year after raising concerns about the “notable and unprecedented growth” in auto lending -- with total loan volume growing by 50 percent since 2010 -- the agency on Friday “re-characterized [auto loans] from a key risk issue to an issue warranting continued monitoring.” The higher risk is now materializing in delinquencies, the OCC reported.

Strategic risk remains high for smaller and midsize banks, which continue to struggle with increased nonbank competition (from marketplace lenders, for example), merger trends, the persistent low-rate environment and governance issues. Larger banks, however, “continue to improve the effectiveness of their processes and controls to address strategic risk,” the OCC said.

Click here to read the report.

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