The Office of the Comptroller of the Currency (OCC) has released the findings of a report examining the impact of the COVID-19 pandemic on the federal banking sector.
The OCC’s semi-annual risk outlook for fall 2021 determined that banks are resiliently resisting the COVID-19 pandemic with satisfactory credit quality and strong earnings while recognizing understated loan demand and weak Net interest margins (NIMs) continue to weigh on performance.
Areas of focus for the report include the operating environment, banking performance, a special topic on community banks, key risk trends and supervisory actions. The report targets the issues threatening financial institutions regulated by the OCC.
According to the analysis, operational risk is increasing as banks react to the advent of more complex operational and cyber risks; credit risk is moderate due to widespread government programs and appropriate risk management limiting the potential impact on credit; the risk of non-compliance increases, with action attributed to regulatory changes and policy initiatives that continually challenge risk management; and banks are taking steps to offset the earnings impacts of low returns while the NIM squeeze remains a risk.
The scope of work covers the risks faced by national banks and federal savings associations based on data as of June 30, 2021.