The National Risk Committee (NRC) of the Office of the Comptroller of the Currency (OCC) published its Semiannual Risk Perspective Fall 2020 on November 9. The semiannual report included numerous findings with respect to the health of the nation’s national banks and federal savings banks, including the following:
- economic activity has rebounded in Q3 but significant ongoing financial risk remains. Fiscal and monetary stimulus helped to “mitigate some of the initial economic effects of the pandemic that affected financial markets in the first half of 2020”;
- residential housing has been “resilient” and national average single-family home prices continue to appreciate;
- banks are generally strong because of high capital ratios and ample liquidity but profitability is stressed because of low interest rates and increased loss provisions;
- credit risk has increased. Challenges are present in most commercial lending sectors. The level of assets that have been designated as “special mention” and “classified” has increased;
- in anticipation of LIBOR cessation at the end of 2021, banks should “continue to apply sound risk management principles” to ensure the transition to a new benchmark is successful; and
- consumers are moving to remote card payments with greater speed. In 2018, the amount of remote card payments nearly matched in-person payments. In addition, there has been some migration of consumer payments to non-banks. Banks need to adapt to this and ensure they have proper risk management and controls in place for these activities.
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