Friday, December 18, 2015

OCC Releases Fall Risk Perspective for U.S. Banks

The Office of the Comptroller of the Currency (OCC) released their Semiannual Risk Perspective for the fall of 2015. The twice yearly report identified several areas of potential risk, including cybercrime and credit risk, as banks face pressure to ease underwriting standards amid increasing competition.

The OCC viewed the outlook for CRE as mixed, noting that the pace of growth in CRE property values will likely slow over the next two years, as higher interest rates would raise borrowing cause for investors and dampen the pace of price growth for commercial properties. In addition, the OCC expects that new construction will cause the national apartment vacancy rate to increase nearly one percent over the next two years, placing downward pressure on rents.

The OCC report found the easing of loan standards to be particularly concerning among banks with increasing concentrations of auto loans, as longer loan terms on automobiles increase loss exposures for banks in the event of default. Nearly 25 percent of banks have shown year-over-year growth in outstanding auto loans of greater than 10 percent, a number which has increased steadily since 2012.

Operational risk remains elevated within the largest banks according to the OCC, and is increasing in smaller banks as many organizations are being targeted via the BEC, a sophisticated scam which forges payment requests for legitimate vendors but directs the funds to a false account. The FBI has attributed $800 million in losses over the last two years due to BEC schemes. When combined with losses reported by international law enforcement agencies, total losses exceed $1.2 billion.

Read the OCC report.
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