OCC Flags Rising Risks in Banking: Cyber Threats, Credit Stress, & Fraud Take Center Stage

The Office of the Comptroller of the Currency (OCC) has issued its Semiannual Risk Perspective for Fall 2024, painting a mixed picture of the federal banking system. While banks remain fundamentally sound, the OCC is waving red flags on growing risks—from stubborn commercial real estate stress to cyber threats and increasingly sophisticated fraud schemes. In short, this isn’t the time for banks to get comfortable.

Banks’ commercial lending portfolios are stabilizing as they tighten risk controls and sharpen monitoring practices. But it’s not all smooth sailing. The commercial real estate (CRE) sector, especially office buildings, remains under heavy stress. Luxury multifamily housing? That’s another pain point, as developers face elevated risks amid shifting demand and rising costs.

On the consumer side, credit risks are creeping up—though not at an alarming rate. Mortgage delinquency rates are still low, but they're moving upward. Meanwhile, credit card and auto loan delinquencies are ticking higher, reflecting what many see as a return to normal after the rock-bottom levels seen during the pandemic.

The message? Banks need to stay laser-focused on identifying risks early, particularly in vulnerable regions and markets.

Operational Risk: Cyber Attacks & Vendor Woes

Operational risk remains high, and much of that has to do with the increasing sophistication of cyber threats. The OCC cautioned that banks—and their third-party service providers—are prime targets for bad actors deploying more advanced attack methods.

Recent disruptions across industries serve as a wake-up call for banks that can’t afford cracks in their defenses. Strong cybersecurity protocols, paired with sound third-party risk management, are non-negotiable for staying resilient.

Compliance teams are feeling the heat as customer needs evolve and fraud grows bolder. The OCC highlighted a few key concerns:

• Fraud Investigations: Banks need to move quickly when investigating unauthorized transactions or fraud disputes. Sluggish processes could mean noncompliance with legal requirements.
• BSA/AML Programs: Gaps in data governance and weak transaction monitoring can result in missed suspicious activity reports—a risky oversight for banks.
• Community Reinvestment Act (CRA): Here, at least, the waters are calmer. The OCC noted that CRA-related risks are holding steady under the current regulatory framework.

Market Risk: Margins Under Pressure, But Stabilizing

Rising funding costs have been a thorn in banks’ sides for most of 2024, but there’s a silver lining: the pace of increase has slowed compared to last year. Net interest margins (NIMs) are holding up unevenly across institutions, as banks navigate fluctuating deposit volumes and funding mixes. Still, liquidity levels are stabilizing, and that’s good news for overall resilience.

If there’s one theme the OCC doesn’t want banks to miss, it’s fraud. External fraud activity is not only increasing but also evolving. Criminals are blending old-school scams with high-tech schemes to target both consumers and financial institutions.

The OCC’s advice? Banks must step up their game with strong fraud controls, sharper monitoring tools, and clear communication with customers. Educating consumers about fraud trends—and how to protect themselves—can go a long way toward mitigating losses.

Stay Resilient, Stay Vigilant

The banking system is solid, but this isn’t the time to let guardrails slip. As the economic landscape remains unpredictable and bad actors grow more creative, banks need to double down on risk management, cyber resilience, and fraud prevention.

By staying agile and proactive, banks can weather emerging challenges and maintain the strength that has been a hallmark of the system—even in turbulent times.

The Semiannual Risk Perspective—based on data through June 30, 2024—serves as a reminder to the industry that when it comes to risk, complacency isn’t an option.

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