December 8, 2021

OCC issues Semiannual Risk Perspective – Fall 2021

On December 6, 2021, the Office of the Comptroller of the Currency (OCC) issued its Semiannual Risk Perspective – Fall 2021 to address the key risks faced by national and federal savings associations that have been identified by the OCC’s National Risk Committee since June 30, 2021.  The Fall 2021 report focuses on four key risk themes, including operating environment, bank performance, emerging trends in key risks, and supervisory actions, as well as the effects of COVID-19 pandemic on the federal banking industry.

According to the Fall 2021 report, banks have generally fared well during the COVID-19 pandemic with strong earnings and satisfactory credit quality; however, bank performance has been negatively affected by weak loan demand and low net interest margins (NIM).  Key highlights include discussions related to elevated operational risks caused by an increasingly complex operating environment and heightened cyber risks, as well as elevated compliance risks stemming from potential challenges by banks’ management to handle changes associated with end stages of COVID-19 relief and assistance programs that may result in high transaction volumes and new types of financial fraud.  The OCC also reports that strategic risks associated with banks’ efforts to manage NIM compression and improve earnings are also elevated, while credit risks are moderate due to widespread government programs and appropriate risk management efforts that have enabled banks to limit the impact of the lower-than-usual demand for credit during the pandemic.  

The OCC also highlights its climate risk initiative in the Fall 2021 report and encourages banks to prepare for physical and transition risks presented by climate change and the impact it may have on the safety and soundness of financial institutions.  As extreme weather events have increased in severity, frequency and breadth in recent years due to climate change, the OCC recommends in the report that banks develop risk mitigation tactics in order to ensure continued service to customers in areas and industries likely to be affected by climate-related events.  Physical risks are described by the OCC as the harm to people and property that could arise from climate-related disasters, while the OCC refers to transition risks as changes in government policy, technology and consumer/investor sentiment such as a possible transition to lower carbon emissions that could have widespread economic impacts both regionally and industry specific.   

Finally, the OCC reveals in the report its plans to provide climate risk management framework guidance in 2022, starting with guidance for large banks followed by detailed recommendations for specific risk areas.  

OCC Press Release | OCC Summary – Semiannual Risk Perspective | Semiannual Risk Perspective – Fall 2021