July 11, 2016

Office of the Comptroller of the Currency, US Government, Warns about Increased Risks Related to Commercial Real Estate Lending

In its Semiannual Risk Perspective for Spring 2016, the Office of the Comptroller of the Currency (OCC) reported that strategic, credit, operational, and compliance risks facing National Banks and Federal Savings Associations remain top concerns.

Selected highlights from the report include:

• Strategic risk remains high as banks struggle to execute their strategic plans and face challenges in growing revenue.

• Credit risk is increasing because of strong loan growth combined with easing in underwriting standards. An increase in concentrations and risk layering, continues as banks strive for yield in an increasingly competitive environment. This is particularly evident in indirect auto, commercial and industrial, and commercial real estate.

• Operational risk concerns include increasing cyber threats, reliance on third-party service providers, and resiliency planning.

• Banks face challenges meeting the integrated mortgage disclosure requirements and amended Military Lending Act regulatory requirements, the latter of which takes effect on October 3, 2016, and managing Bank Secrecy Act risks.

The report covers risks facing national banks and federal savings associations based on data through December 31, 2015. CRE lending by banks, has increased from one third of total lending in 2014 to more than a half in the first quarter of 2016 (Morgan Stanley).

Link to full report>>