The Office of the Comptroller of the Currency (OCC) is warning that the nation's major financial institutions face significant challenges from the lingering effects of a weak housing market and the continuation of slow economic growth and market volatility.
According to the OCC's latest Semiannual Risk Perspective, the overhang of severely delinquent and in-process-of-foreclosure residential mortgages continues to challenge large banks with extensive mortgage operations and continues to affect the economic environment for all banks. Housing-related loans continue to demonstrate above-average rates of delinquency and charge-off, the OCC adds, and the persistence of historically low interest rates continues to hamper margin upside by limiting the ability of many banks to further reduce funding costs.
The OCC adds that although commercial real estate performance is improving, vacancy rates and the level of problem assets continue to be high. Outside of commercial and industrial lending, the OCC warns that bank loan growth ‘remains tepid.’
Furthermore, the OCC reports that the U.S. banking industry ‘continues to recover from the recent recession and to adjust to significant shifts in its operating and regulatory environments. These shifts are inducing large changes in the risk and profitability profiles of all banks, but may affect community banks differently than large banks. Combined, these conditions present significant operational risk for banks of all sizes.’
The OCC's report is available online.