30 November 2023

OCC Outlines Bank Supervision Priorities for 2024

The Office of the Comptroller of the Currency (OCC) has released its 2024 operating plan detailing elevated supervision priorities for overseeing national banks and federal savings associations. With inflation high, rates rising, and recession possibilities looming, the agency aims to ensure banks are prepared to navigate heightened uncertainty.

Sharpened Focus on Interest Rate and Liquidity Risk Management

A top priority is evaluating how banks manage interest rates and liquidity risks, given major shifts in market conditions. Examiners will conduct in-depth reviews of stress-testing approaches, model assumptions, sensitivity analysis, contingency funding plans, back-testing, and policy limits. The goal is to assess the adequacy of banks’ preparations for different scenarios involving rate spikes, depositor behavior changes, and restricted access to funding sources.

Enhanced Loan Portfolio Monitoring and Credit Risk Management

Another priority is assessing how banks are identifying and responding to credit risk. Examiners will evaluate the results of stress testing adverse economic scenarios and implications for capital levels. Risk rating accuracy, concentration risk management, loss mitigation programs, and portfolios seeing the highest growth will also be scrutinized. Reviews will gauge the effectiveness of challenges to assumptions and scenarios. The allowances for credit losses set aside will be reviewed to ensure robust methodologies, documentation, governance, and assumption calibration.

Bolstering Cybersecurity and Operational Resilience

Cybersecurity remains a major focus given the increasing threat of attacks like ransomware. Examiners will identify any control weaknesses using the agency’s dedicated supervision program. There will also be heightened reviews of system and data backup techniques, recovery testing, patch management, access controls, and incident response. End-of-life technology risks will also be evaluated. The effectiveness of banks’ due diligence and oversight of critical third-party relationships will be assessed.

Monitoring Risks of Emerging Innovations and Services

The OCC also aims to evaluate risks associated with new products, services, and technologies, like crypto-assets, real-time payments, and AI. Examiners will review due diligence, risk governance, and controls to ensure banks safeguard these innovations. Particular attention will be paid to arrangements with fintech partners and activity outsourcing. Reviews will also focus on change management strategies during significant company transformations.

Compliance Risk Management and Fair Lending

Several compliance areas will also draw scrutiny, including BSA/AML programs, unfair/deceptive practices, and third-party compliance support. With faster payment adoption increasing, error resolution and fraud controls will be examined. Fair lending supervision will encompass emerging areas like appraisal bias and include statistical analysis to surface discriminatory patterns.

Climate Risk Management Expectations for Large Banks

Finally, while formal requirements are still pending, large banks must demonstrate progress in climate risk management. Examiners will monitor early framework development and scenario analysis capabilities. The goal is to understand institution-specific challenges and provide input on best practices.

With significant uncertainty, the OCC is positioning itself to ensure banks have resilient risk management programs and infrastructure to maintain stability. While balancing innovation support, the priority will be upholding safe and sound operations. Banks that fail to adapt may face heightened supervisory attention and consequences in 2024.

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