On June 30, 2025, the OCC released their Spring 2025 edition of the publication Semiannual Risk Perspective. The publication addresses key issues facing banks, focusing on those that pose threats to the safety and soundness of banks and their compliance with applicable laws and regulations.
The Spring 2025 Semiannual Risk Perspective report presents data in three main areas: operating environment, bank performance, and trends in key risks. Highlights from this edition include:
Commercial credit risk is increasing, driven by growing geopolitical risk, sustained higher interest rates, growing caution among businesses and their customers, and other macroeconomic uncertainty. Pockets of risk remain for some commercial real estate property types and vary by geographic market and product type. Refinance risk remains high for loans underwritten during a period of lower interest rates.
Retail credit risk remains stable despite economic uncertainty. Most consumer borrower segments continue to withstand elevated prices, interest rates, and growing debt levels, supported in part by growth in wages exceeding aggregate inflation since 2019. However, wage growth is decelerating, and economic uncertainty is driving adverse changes in consumer sentiment.
Regarding market risk, net interest margins in OCC-supervised institutions improved in the latter half of 2024 as effective federal funds rate (EFFR) cuts enabled banks to lower funding costs. Robust interest rate risk scenario analysis and sensitivity testing are critical due to uncertainty surrounding inflation and future EFFR movement. Asset-based liquidity was stable in 2024, but unrealized investment portfolio losses remain a focus. Deposits were also stable, but deposit competition warrants continued monitoring.
Operational risk is elevated. Banks continue to seek opportunities to gain efficiencies and respond to an evolving and increasingly complex operating environment. Failure to upgrade systems and digitize may result in loss of market share to competitors offering faster and cheaper payment alternatives. Criminals continue to exploit traditional payment methods. Fraud schemes commonly target checks, wire transfers, peer-to-peer payment platforms, and insiders. Evolving cyber threats by sophisticated malicious actors continue to target banks and their key service providers, emphasizing the importance of operational resilience. Recent disruptions across many sectors, including the financial sector, highlight the importance of sound third-party risk management.
Compliance risk remains elevated due in part to Bank Secrecy Act/anti-money laundering and consumer compliance risks associated with elevated fraud levels; account access concerns, and evolving business models.
The Spring 2025 OCC Semiannual Risk Perspective can be found here.
