Banks should still be on guard despite relative calm in the industry compared to where things were three months ago following the collapse of Silicon Valley Bank (SVB), the Treasury Department’s Office of the Comptroller of the Currency (OCC) warned.
The agency’s semiannual risk perspective released Wednesday noted compliance and operation risks at banks remain elevated regardless of strengthened liquidity levels in response to the failures of SVB, Signature Bank, and First Republic Bank. The OCC also flagged signs of stress among credit risks, a result of high inflation and rising interest rates.
In a statement accompanying the release of the report, Acting Comptroller of the Currency Michael Hsu said the agency expects banks to “be on the balls of their feet” regarding risk management. He noted banks should be:
- Guarding against a false sense of comfort;
- Re-evaluating exposures, especially asset and liability concentrations;
- Acting to preserve capital and maintain strong liquidity consistent with their respective risk profiles;
- Maintaining discipline and strong risk management across all risk areas; and
- Preparing to communicate their condition and risk profile should they be questioned by customers, investors, depositors, and other stakeholders.
“Most of the banks we supervise are doing these things,” Hsu said. “Maintaining such vigilance can be challenging, though. That is why it is critical for us all to continue to guard against complacency.”
Hsu said the OCC has been “closely monitoring” the financial institutions it supervises since March, when SVB and Signature Bank each failed. As a result of the collapses, other banking regulators, including the Federal Reserve Board and Federal Deposit Insurance Corporation, have indicated they will be more assertive in their supervision of mid-sized banks.
The urgency behind that vigilance increased when First Republic was closed in May and sold to JPMorgan Chase, even after other large banks came together to inject $30 billion in deposits into the struggling institution.