OCC’s Semiannual Risk Perspective Highlights Key Risks in Federal Banking System

Bank earnings improved in 2025, supported by loan growth and a decline in funding costs. Balance sheets remain strong and credit risk within the federal banking system remains manageable. Earnings releases for the first quarter of 2026 indicate that these trends have generally persisted.

The OCC highlighted credit, market, operational, and compliance risks, as key risk themes in the report. The report also discussed innovation. Highlights from the report include:

• Credit conditions and refinancing risk in certain segments of commercial real estate lending and private credit markets warrant ongoing monitoring.
• Modest increases in past-due loans have been observed in some consumer portfolios. However, OCC-supervised banks have manageable exposures to borrowers with weaker credit profiles.
• Balance sheets remain strong, with capital ratios and liquidity high by historical standards.
• Cyber threats and fraud remain a concern. Cybercriminal groups targeting the financial sector are increasingly sophisticated, and foreign state-sponsored actors continue to pose a threat. Banks continue to face challenges from both the elevated levels and rising sophistication of fraud and scams.
• A sound understanding of the potential benefits and possible risks associated with increasingly advanced AI tools coming onto the market that can assist with cybersecurity functions can be important for cyber risk management.
• Geopolitical tensions increase sanctions and money laundering risk, straining bank compliance systems, and may raise the potential for sanctions and Bank Secrecy Act/anti-money laundering violations.