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WASHINGTON — 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 Spring 2021. 

Banks maintained sound capital and liquidity levels but profitability remains stressed due to low interest rates and low loan growth. The OCC highlighted credit, strategic, operational, and compliance risks, among the key risk themes in the report.

Highlights from the report include:

• Credit risk is elevated and transitioning as the economic downturn continues to affect some borrowers’ ability to service debts. Assistance programs and federal, state, and local stimulus programs have suppressed past-due levels.
• Strategic risks associated with banks’ management of Net Interest Margin (NIM) compression and efforts to improve earnings is elevated. Banks attempting to improve earnings may implement measures including cost cutting, increasing credit risk (both credit and investments) or extending duration.
• Operational risk is elevated due to a complex operating environment and increasing cybersecurity threats.
• Compliance risk is elevated as banks’ expedited efforts to implement assistance programs continue to challenge established change management, product, and service risk management practices.

The report also highlights the low interest rate environment as a special topic in emerging risks.

The report covers risks facing national banks and federal savings associations based on data as of December 31, 2020. The report presents information in five main areas: the operating environment, bank performance, special topics in emerging risk, trends in key risks, and supervisory actions. It focuses on issues that pose threats to those financial institutions regulated by the OCC and is intended as a resource to the industry, examiners, and the public.

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