Manufactured Overhead
The Office of the Comptroller of the Currency (OCC) recently issued itsSemiannual Risk Perspective, which discusses risk concerns for national banks and savings institutions.
The three major risk concerns that the OCC outlined in the report are (1) the after-effects of the recent housing-driven boom/bust cycle; (2) the challenges to banking industry revenue growth in a post-recession, slow-growth economy; and (3) the potential that financial institutions may take excessive risks to improve profitability.
The key risks discussed in the report include:
Credit performance overall remains vulnerable to weak economic growth and potential shocks. Housing-related loans continue to demonstrate above-average delinquency and charge-off rates. Commercial real estate vacancy rates and problem asset levels continue to be high.
The persistence of historically low interest rates continues to hamper growth in net interest margins by limiting the ability to further reduce funding costs. Low interest rates have also contributed to extraordinary growth in non-maturity deposits that may be vulnerable to run-off and significant upward repricing.
Loan growth generally has been tepid, putting pressure on asset yields and on underwriting standards as lenders compete for higher-earning assets. The search for higher asset yields also is evidenced by growing portfolios of longer-duration investment securities.
Profitability and productivity have been dampened by costs incurred to address weaknesses identified in the foreclosure process and mortgage servicing. There are continuing negative effects from the overhang of residential mortgages that are severely delinquent and in process of foreclosure.
Developments in European countries continue to weigh on market confidence and the economic recovery, thereby contributing to an increase in the cost of long-term debt and equity financing.
Ongoing pressures from legislative, regulatory, and market changes have depressed revenue sources
The three major risk concerns that the OCC outlined in the report are (1) the after-effects of the recent housing-driven boom/bust cycle; (2) the challenges to banking industry revenue growth in a post-recession, slow-growth economy; and (3) the potential that financial institutions may take excessive risks to improve profitability.
The key risks discussed in the report include:
Credit performance overall remains vulnerable to weak economic growth and potential shocks. Housing-related loans continue to demonstrate above-average delinquency and charge-off rates. Commercial real estate vacancy rates and problem asset levels continue to be high.
The persistence of historically low interest rates continues to hamper growth in net interest margins by limiting the ability to further reduce funding costs. Low interest rates have also contributed to extraordinary growth in non-maturity deposits that may be vulnerable to run-off and significant upward repricing.
Loan growth generally has been tepid, putting pressure on asset yields and on underwriting standards as lenders compete for higher-earning assets. The search for higher asset yields also is evidenced by growing portfolios of longer-duration investment securities.
Profitability and productivity have been dampened by costs incurred to address weaknesses identified in the foreclosure process and mortgage servicing. There are continuing negative effects from the overhang of residential mortgages that are severely delinquent and in process of foreclosure.
Developments in European countries continue to weigh on market confidence and the economic recovery, thereby contributing to an increase in the cost of long-term debt and equity financing.
Ongoing pressures from legislative, regulatory, and market changes have depressed revenue sources