On June 14, the Office of the Comptroller of the Currency (OCC) published the spring edition of its Semiannual Risk Perspective, which discusses key issues facing banks. The good news is that the federal banking system saw historic growth in net interest income in 2022. However, rising interest rates weigh on other aspects of bank performance, such as noninterest income, as mortgage activity continues to slow.
While the OCC emphasized that banking conditions are overall sound, the report zeroed in on liquidity, operational, credit, and compliance risks as key themes.
- Liquidity:
- Liquidity levels have been strengthened in response to three significant bank failures in Q1 and Q2 2023, but rising long-term rates continue to cause significant depreciation in investment portfolios.
- Liquidity and interest rate risk modeling, stress testing, and sensitivity analysis remain critical to maintain sufficient access to cost-efficient sources of liquidity.
- The OCC wants banks to focus on ensuring operational readiness to access contingent liquidity sources in light of the degree and speed of deposit flight observed in early 2023.
- Operational Risks:
- Operational risk…
