The OCC’s Semiannual Risk Perspective for Fall 2013 details risks facing the banking industry:
• Strategic risk remains elevated as many banks re-evaluate their business models and risk appetites to generate returns against the backdrop of slow economic growth and low interest rates. OCC examiners will focus on banks’ strategic business and new product planning to ensure banks maintain appropriate risk management processes.
• Cyber threats are growing in sophistication and frequency, and require heightened awareness and appropriate resources to identify and mitigate the associated risks.
• Competition for limited lending opportunities is intensifying, resulting in increased risk tolerance and loosening underwriting standards, particularly in new or unfamiliar loan products. The recent rise in long-term interest rates underscores the vulnerability for banks that reach for yield, as they could face significant earnings pressure, possibly to the point of capital erosion, if interest rates increase further.
• Bank Secrecy Act and Anti-Money Laundering risks continue to rise as money laundering methods evolve, electronic bank fraud increases in volume and sophistication, and banks fail to incorporate appropriate controls into new products and services.
• Price volatility has been very low for a long time. Light securities dealer inventories suggest limited risk appetite for market making, raising the possibility of more significant market volatility and price risk as quantitative easing policies change.
