Office of the Comptroller of the Currency's Semiannual Risk Perspective Spring 2025.

www.marktreichel.comhttps://www.linkedin.com/in/mark-treichel/Show Notes: OCC Semiannual Risk Perspective Spring 2025Episode OverviewThis episode covers the Office of the Comptroller of the Currency's Semiannual Risk Perspective for Spring 2025, providing valuable insights for credit unions on key banking risks and industry trends.Key Topics CoveredFederal Banking System Key ThemesOverall system strength remains sound despite economic uncertaintyCommercial credit risk increasing due to geopolitical risks and sustained higher interest ratesRetail credit risk stable but consumer sentiment decliningMarket and liquidity risk stable with improved net interest marginsOperational risk elevated due to cyber threats and digitalization challengesCompliance risk remains elevatedEconomic Operating EnvironmentGlobal: Slow growth forecast for 2025, trade policy uncertainty, geopolitical tensionsDomestic: GDP 12% above pre-pandemic peak, unemployment at 4.2%, but economic uncertainty growingProjections: 1.2% growth in 2025, 1.3% in 2026; PCE inflation expected to reach 3.6% by Q3 2025Credit Risk InsightsCommercial CreditCRE market conditions vary by property typeOffice vacancies projected to continue rising into 2026Multifamily market expected to stabilize later in 2025Refinance risk high for loans underwritten during low-rate periodsTrade disruptions may compress industry marginsRetail CreditDelinquency rates manageable but trending upwardConsumer payment prioritization favoring low-rate mortgagesTighter lending standards across consumer categoriesNatural disaster impacts on insurance and collateral administrationMarket RiskNet interest margins improved in second half of 2024Unrealized investment losses remain a concern10-year Treasury yield volatility affecting portfolio valuesInterest rate risk scenario testing critical given uncertaintyOperational RiskCybersecurityContinued targeting by threat actors with ransomwareIncrease in "double extortion" attacksATM jackpotting attempts risingThird-party dependencies creating single points of failureInnovation & TechnologyCautious AI adoption with focus on fraud detection and credit underwritingLegacy system challenges amid digitalization demandsNew OCC guidance on crypto-asset activities (IL 1183 and IL 1184)Board oversight responsibilities for new technologiesFraud Risk ManagementTraditional payment methods still targetedSocial engineering and phishing schemes prevalentFirst-party fraud and insider abuse concernsImportance of customer education and staff trainingCompliance RiskBSA/AML and OFACElevated fraud levels increasing SAR filing obligationsFintech partnerships may lack adequate compliance resourcesCorporate Transparency Act requirements removed for US companiesNeed for continued CDD rule complianceConsumer ComplianceInvestigation and resolution timeframes criticalNew deposit products requiring clear communicationsRising insurance premiums affecting flood insurance complianceBank PerformanceReturn on equity stable at 11.7% for federal banking systemNet interest income growth slowed due to funding costsLoan growth weak at 1.6%, driven by C&I loan declinesBalance sheet positioning may benefit from future rate cutsNet charge-off rates historically strong despite slight increasesKey StatisticsFederal banking system liquid assets: 31% of total assets (vs. 16% in 2008)Employment: 5.5 million above pre-pandemic peakUnemployment rate: 4.2%Q1 2025 job creation: 177,000Federal banking system loan growth: 1.6%Deposit growth: 1.6%Important Dates & Regulatory UpdatesMarch 7, 2025: OCC issued IL 1183 on crypto-asset activitiesMay 7, 2025: OCC issued IL 1184 on crypto-asset custody servicesMarch 2025: Treasury removed beneficial ownership reporting requirementsSeptember 2024: Federal Reserve began rate cuts (100 basis points total)Credit Union ApplicationsWhile this report focuses on OCC-supervised institutions, the principle-based guidance provides excellent insights for credit unions to:Assess similar risk exposuresBenchmark risk management practicesPrepare for evolving regulatory expectationsUnderstand industry-wide trends affecting the financial sectorSponsor InformationCredit Union Exam Solutions LLCOver 240 years of combined NCUA experienceAssists credit unions with NCUA examinationsContact: Mark Treichel at MarkTreichel.comLinkedIn: Mark TreichelRelated ResourcesOCC Bulletin 2017-43: "New, Modified, or Expanded Bank Products and Services"OCC Bulletin 2023-17: "Third-Party Relationships: Interagency Guidance"OCC Bulletin 2019-37: "Operational Risk: Fraud Risk Management Principles"With Flying Colors Podcast: NCUA examination tips and strategiesThis podcast is educational and is not legal advice. Content reflects conditions as of December 31, 2024, unless otherwise noted. Are you worried about an NCUA exam in process or looming on the horizon? Don't face it alone!We're ex-NCUA insiders with decades of experience, ready to guide you to success. Our team understands the ...