The lingering ill effects of weak housing markets. The difficulty of increasing revenues in a time of slow economic growth and market volatility. The possibility that banks might take excessive risks to try to make themselves more profitable.
Those were among the top risks to U.S. banks cited in "Semiannual Risk Perspective" for spring 2012, a report issued by the Office of the Comptroller of the Currency, or OCC, a federal government bank regulatory agency. The report aims to explore the risks to safety and soundness that national banks and federal savings associations face, the OCC said in a statement.
The "overhang" of residential mortgages that are severely delinquent or in the process of foreclosure continues to affect the economic environment for all banks and is especially challenging for large banks that have extensive mortgage operations, according to the agency.
"Housing-related loans continue to demonstrate above-average rates of delinquency and charge-off. Commercial real estate performance is improving, but vacancy rates and the level of problem assets continue to be high," the OCC said.
Banks' attempts to achieve operational economies through revenue-enhancing systems and processes, including the use of third-party products and services, are also "a key concern," the OCC noted.
Low interest rates are supposed to stimulate lending and economic activity, but they aren't all good for banks, in part because low rates limit banks' ability to further reduce their lending costs. New laws and regulations and market conditions also have hurt banks' ability to earn more income from other activities, such as fees, loan servicing and loan securitization, just when lending income has declined, the OCC noted.
Banks' capital levels and loan loss allowances are "more robust and of higher quality" than they were before the financial crisis, especially at the largest banks, the agency said. But the banking industry hasn't yet completely recovered from the recent recession and is still adjusting to regulatory changes.
For consumers, all those risks to the banking system might all sound scary, given the misery inflicted by the banking crisis. Still, it's important to remember that known risks can be mitigated -- assuming regulators do more than write reports about them.
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