New OCC Warning: Top Risks Facing Lenders

Are Your Standards Tough Enough?

The last time the US Comptroller of the Currency sounded the alarm about rising concentrations and looser underwriting standards for commercial real estate loans was in December. This week, the OCC stayed true to its promise to keep a closer eye on CRE lending, among other risks facing lenders today. The OCC’s latest Semiannual Risk Perspective report acknowledges a strong and healthy banking system (the good news), but also highlights a number of risks that institutions should address.


The Semiannual Risk Perspective for Spring 2016 highlights a mix of old and emerging risks that lenders should be mindful of—and proactive about managing.

  • Rising CRE exposure, easing underwriting standards

The report singled out commercial real estate as a focus of concern, especially among small banks. Since 2012, CRE portfolios have seen rapid growth, particularly among small banks. As of year-end 2015, 406 banks had three-year growth rates of 50 percent or more—and more, 180 of them had more than doubled the size of their CRE portfolios. With the continuation of favorable market fundamentals, the OCC expects additional growth in 2016—yet in this high-growth period, supervisory reviews continue to find evidence of easing underwriting standards and practices in commercial lending as lenders strive for volume and yield.

“It’s at this stage of the cycle that we also see strong loan growth combined with easing underwriting to result in increased credit risk. CRE portfolios have seen rapid growth, particularly among small banks, and concentration risk management has become an area of emphasis for regulators.”

~Thomas Curry, U.S. Comptroller of the Currency


  • Technology platforms

Compliance risk management remains a complex area to manage and continues to pose challenges as banks implement systems to address changes in technology and comply with new rules. Business operating models are under increasing pressure as banks leverage technology, implement systems to comply with new rules, reduce staffing, outsource critical activities, reengineer business processes, and partner with firms unfamiliar with the bank regulatory environment. Banks may not always adapt risk management and control processes to these changes in business strategy.

“Some banks are struggling to find viable business models, while others are increasingly adopting innovative products, services, and processes in response to evolving customer demands and the entrance of new competitors. Doing so often involves assuming unfamiliar risks, including expanded reliance on third-party relationships, and the need to update or acquire new information systems and technology platforms. Banks may face heightened strategic planning and governance risk if they do not use sound risk management practices…”

~Thomas Curry, U.S. Comptroller of the Currency

  • Cybersecurity risks

Operational risk remains elevated as banks deal with changing threats to cybersecurity and increasing reliance on third-party relationships.

“Operationally, banks are dealing with existing and constantly evolving cybersecurity threats and increasingly rely on third parties for essential services. These areas require heightened management attention and continuous vigilance.”

~Thomas Curry, U.S. Comptroller of the Currency

  • Rapid growth of marketplace lenders

Strategic risk remains high as smaller and midsize banks struggle with increased nonbank competition from marketplace lenders, in particular. U.S. marketplace lending platforms reported rapid growth in 2015, with an estimated $28.6 billion in loans originated. Marketplace lenders are nonbank lenders that rely heavily on online marketing and underwriting platforms.

“We also see an increasing number of relationships between banks and marketplace lenders. While the OCC strongly encourages responsible innovation that provides fair access to financial services and fair treatment of consumers, we have also stressed that banks should have effective risk management to ensure such innovation aligns to their long-term business strategies.”

~Thomas Curry, U.S. Comptroller of the Currency


Interest rates have been low for more than seven years as the economy recovers from the 2008 financial crisis. Lenders today are facing profit pressures and competing fiercely for credit-worthy borrowers—and the OCC is concerned. In response, the OCC has escalated its oversight of commercial real estate risk from ordinary monitoring to “additional emphasis.”

This week’s OCC Risk Perspective is just the latest warning sign that bank oversight will continue as regulators attempt to minimize the risk of another financial crash. Financial institutions regulated by the OCC can bank on increased attention on the areas highlighted in this brief. Any lenders with OCC oversight should review the latest report, which identifies the key risk themes that will be the focus of OCC examiners over the near term.


The OCC’s Semiannual Risk Perspective has been published since 2012 to bring greater transparency to the OCC’s views and priorities and to promote greater risk management across national banks and federal savings associations. Since then, the report has become regular reading for industry participants, analysts, and, of course, bank supervisors. The report released this week covers risks facing national banks and federal savings associations based on data through December 31, 2015. It presents data in four main areas: the operating environment, bank performance, key risk issues, and regulatory actions. It focuses on issues that pose threats to the safety and soundness of those financial institutions regulated by the OCC and is intended as a resource to the industry, examiners, and the public.