Banks might seem impervious to risk. But in fact, even the largest national ones are vulnerable to threats that they must learn to manage.
That's according to the Office of the Comptroller of the Currency, or OCC. The federal banking regulatory agency recently released its semiannual assessment of the risks that pose threats to the safety and soundness of the national banks and federal savings thrifts the OCC oversees.
Banks are "laying risk back into the system," as they seek ways to improve their profits despite continued slow economic growth and persistently low interest rates, the OCC said. These layers are "difficult to quantify at this point in the (economic) cycle," thus risk management must remain a top priority, the OCC said.
The agency's assessment pointed out five specific areas of risk that banks must manage:
- Strategic risk. This type of risk, which stems from business strategies such as new business models and new product planning, "remains elevated," the OCC said.
- Cyber risk. These threats, which involve computer and network vulnerabilities, are "growing in sophistication and frequency," so banks need to apply greater awareness and "appropriate" resources to identify and mitigate them, the OCC said.
- Limited lending opportunities. Tough competition in a tight lending climate can lead to an elevated risk-taking tolerance and easier underwriting standards, particularly for new or unfamiliar loan products. The OCC suggested this vulnerability could be heightened for banks that try to raise profits as interest rates potentially rise further.
- Money laundering. These schemes to "clean" ill-obtained gains through the bank system have evolved, and electronic bank fraud has become more pervasive and sophisticated. Thus, banks must incorporate appropriate controls into new products and services that they introduce, the OCC suggested.
- Price volatility. This risk "has been very low for a long time," the OCC found. However, the possibility of greater volatility in future securities raises concerns.
Do you feel that your bank is at risk?
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