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Show Notes: OCC Semiannual Risk Perspective Spring 2025

Episode Overview

This 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 Covered

Federal Banking System Key Themes

• Overall system strength remains sound despite economic uncertainty
• Commercial credit risk increasing due to geopolitical risks and sustained higher interest rates
• Retail credit risk stable but consumer sentiment declining
• Market and liquidity risk stable with improved net interest margins
• Operational risk elevated due to cyber threats and digitalization challenges
• Compliance risk remains elevated

Economic Operating Environment

• Global: Slow growth forecast for 2025, trade policy uncertainty, geopolitical tensions
• Domestic: GDP 12% above pre-pandemic peak, unemployment at 4.2%, but economic uncertainty growing
• Projections: 1.2% growth in 2025, 1.3% in 2026; PCE inflation expected to reach 3.6% by Q3 2025

Credit Risk Insights

Commercial Credit

• CRE market conditions vary by property type
• Office vacancies projected to continue rising into 2026
• Multifamily market expected to stabilize later in 2025
• Refinance risk high for loans underwritten during low-rate periods
• Trade disruptions may compress industry margins

Retail Credit

• Delinquency rates manageable but trending upward
• Consumer payment prioritization favoring low-rate mortgages
• Tighter lending standards across consumer categories
• Natural disaster impacts on insurance and collateral administration

Market Risk

• Net interest margins improved in second half of 2024
• Unrealized investment losses remain a concern
• 10-year Treasury yield volatility affecting portfolio values
• Interest rate risk scenario testing critical given uncertainty

Operational Risk

Cybersecurity

• Continued targeting by threat actors with ransomware
• Increase in "double extortion" attacks
• ATM jackpotting attempts rising
• Third-party dependencies creating single points of failure

Innovation & Technology

• Cautious AI adoption with focus on fraud detection and credit underwriting
• Legacy system challenges amid digitalization demands
• New OCC guidance on crypto-asset activities (IL 1183 and IL 1184)
• Board oversight responsibilities for new technologies

Fraud Risk Management

• Traditional payment methods still targeted
• Social engineering and phishing schemes prevalent
• First-party fraud and insider abuse concerns
• Importance of customer education and staff training

Compliance Risk

BSA/AML and OFAC

• Elevated fraud levels increasing SAR filing obligations
• Fintech partnerships may lack adequate compliance resources
• Corporate Transparency Act requirements removed for US companies
• Need for continued CDD rule compliance

Consumer Compliance

• Investigation and resolution timeframes critical
• New deposit products requiring clear communications
• Rising insurance premiums affecting flood insurance compliance

Bank Performance

• Return on equity stable at 11.7% for federal banking system
• Net interest income growth slowed due to funding costs
• Loan growth weak at 1.6%, driven by C&I loan declines
• Balance sheet positioning may benefit from future rate cuts
• Net charge-off rates historically strong despite slight increases

Key Statistics

• Federal banking system liquid assets: 31% of total assets (vs. 16% in 2008)
• Employment: 5.5 million above pre-pandemic peak
• Unemployment rate: 4.2%
• Q1 2025 job creation: 177,000
• Federal banking system loan growth: 1.6%
• Deposit growth: 1.6%

Important Dates & Regulatory Updates

• March 7, 2025: OCC issued IL 1183 on crypto-asset activities
• May 7, 2025: OCC issued IL 1184 on crypto-asset custody services
• March 2025: Treasury removed beneficial ownership reporting requirements
• September 2024: Federal Reserve began rate cuts (100 basis points total)

Credit Union Applications

While this report focuses on OCC-supervised institutions, the principle-based guidance provides excellent insights for credit unions to:

• Assess similar risk exposures
• Benchmark risk management practices
• Prepare for evolving regulatory expectations
• Understand industry-wide trends affecting the financial sector

Sponsor Information

Credit Union Exam Solutions LLC

• Over 240 years of combined NCUA experience
• Assists credit unions with NCUA examinations
• Contact: Mark Treichel at MarkTreichel.com
• LinkedIn: Mark Treichel

Related Resources

• OCC 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 strategies

This podcast is educational and is not legal advice. Content reflects conditions as of December 31, 2024, unless otherwise noted.

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