OCC: Semiannual Risk Perspective from the National Risk Committee, Fall 2025.
Samantha: Hello, this is Samantha Shares.
This episode covers Semiannual
Risk Perspective from the National
Risk Committee, Fall 2025.
The following is an audio
version of that document.
This podcast is educational
and is not legal advice.
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And now the document.
The strength of the federal
banking system remains sound.
Balance sheets remain satisfactory,
with high capital and liquidity ratios
positioned to absorb potential stress.
Lower funding costs, moderate loan growth,
and modest expense growth contributed to
the satisfactory earnings performance.
Investment portfolio unrealized losses
fell to half of amounts reported in two
thousand twenty three given the rate
environment and strategic repositioning.
Net interest margin generally expanded
throughout the federal banking system
and non maturity and term deposit
costs reset in line with lower rates.
Commercial and retail loan portfolio
delinquencies, loss rates, and noncurrent
and classified levels remain manageable.
Liquidity remains sound.
Deposit levels, net of brokered deposits,
continued to increase during the first
half of two thousand twenty five.
Contingent liquidity sources
are satisfactory and expanding.
Noncurrent loan rates for the federal
banking system slightly increased
from the prior year but remain
well below their long term average.
Cyber threats remain a concern.
The Office of the Comptroller of the
Currency has observed an increase in
threats posed by foreign state sponsored
actors and sophisticated cybercriminal
groups targeting the financial sector.
These actors continue to target financial
institutions due to the sensitive
nature of financial data and the
critical role of banks in the economy.
Financial innovation presents
banking opportunities.
The financial industry is in the midst
of a change in the nature and delivery
of financial products and services.
Innovation brings risks, but so
too does a lack of innovation.
A lack of investment in new
technologies, products, and services
may present material risks to
long term bank performance and the
viability of institutions that are
slow, reluctant, or unable to evolve.
The Office of the Comptroller of the
Currency seeks to foster a regulatory
environment that enables banks to advance
their businesses and client interests
while managing financial risks and
operating in a safe and sound manner.
Commercial and retail loan portfolio
delinquencies, loss rates, and
noncurrent and classified levels remain
manageable across most loan categories.
Multifamily commercial real estate
experienced the most weakening in credit
performance from the prior year, with
noncurrent loan rates above their nineteen
ninety one to twenty nineteen average.
This increase was driven by an outlier and
not a systemic decline in loan quality.
For community banks, noncurrent
rates were little changed from
historically low levels of a year
ago and remained below historical
averages across all loan categories.
Total loan balances for the federal
banking system were nearly four
percent higher from a year ago.
Loan growth was supported by property
loans such as residential real
estate and nonfarm nonresidential
commercial real estate, as well as
multifamily commercial real estate.
Banks reported tighter underwriting
standards for commercial and
industrial loans, reflecting a
more uncertain economic outlook.
Slowing economic growth and higher
input prices could compress margins
in some manufacturing sectors,
particularly for companies with higher
leverage or weaker margins that cannot
pass rising costs on to customers.
Banks also reported tighter
underwriting standards and weaker
demand for commercial real estate
loans and residential mortgage loans.
Where banks saw weaker demand for
commercial and industrial loans, this was
attributed to lower customer investment
in plants and equipment and decreased
financing needs for inventories.
While prudent, tightening credit
standards could result in higher
refinance risk for marginal borrowers.
Risks in income producing commercial
real estate portfolios vary by
property type and geography.
Hospitality and industrial commercial
real estate are showing signs of
weakening amid lower demand, while
retail properties remain resilient.
Office properties are experiencing
mixed results as supply growth
has tapered, but demand remains
sensitive to macroeconomic conditions.
Demand for multifamily commercial
real estate continues to grow, and
vacancies are declining in many markets.
Market risk in the federal banking system
is generally satisfactorily managed.
Net interest margin expanded
at many banks due to increasing
asset yields and decreasing term
and non maturity deposit costs.
Liquidity remains sound.
Unrealized investment portfolio
losses remain elevated and exposed to
higher yields along the United States
Treasury yield curve, but represent
about half of what was reported
during two thousand twenty three.
Some banks chose to reposition their
portfolios by selling lower yielding
securities, realizing the loss,
and reinvesting at market yields.
The financial industry is in the midst
of significant technological innovation.
Banks of all sizes are exploring ways
to leverage artificial intelligence.
Some banks are deploying sophisticated
models to improve credit underwriting,
detect fraud in real time, and
personalize customer experience.
Generative artificial intelligence
use cases have largely been internal
facing, focusing on improving
employee efficiencies, coding,
call center agent assistance,
employee knowledge base support, and
document creation and summarization.
Appropriate governance and risk
management are essential to mitigate
potential risks when implementing
artificial intelligence systems.
The United States economy
remains generally resilient,
demonstrated by stable and positive
corporate earnings performance
and continued consumer spending.
The economy experienced modest gross
domestic product growth in the first
half of two thousand twenty five,
with a first quarter contraction
followed by a second quarter rebound.
Job creation has slowed, but the
unemployment rate has remained
low by historical standards.
Market participants anticipate
further federal funds rate cuts.
Banks remain well positioned to
absorb stress, with capital ratios and
liquidity high by historical standards.
This concludes the document.
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This is Samantha Shares, and
we thank you for listening.
