OCC eyes inflation, recession impacts in 2023 agenda

The impacts of higher inflation and interest rates, as well as the risk of recession, will form a core part of the regulatory agenda for the Office for the Comptroller of the Currency (OCC) in the coming financial year.

The OCC announced that its examiners would “focus on the impacts of volatile economic conditions” as part of their oversight of US banks.

The regulator also called for banks to be on the lookout for rapidly changing credit market conditions, especially after a period of historical low levels of credit losses.

The OCC stated that supervision would “focus on risk management functions to determine whether there is appropriate credible challenge”, as well as evaluating stress testing work.

It explained: “Examiners should evaluate banks’ stress testing of adverse economic scenarios and the implications, such as amplified impacts to retail and commercial borrowers experiencing increased operating and borrowing costs at loan origination, at renewal, or over the term of the credit. Risk-based examination work should focus on new products, areas of highest growth, or portfolios that represent concentrations.”

Additional priorities for the regulator’s risk-based supervisory work will include “safety and soundness, and fairness”, the OCC said, which involves scrutiny of governance structures to ensure banks remain stable through economic challenges. It will also cover recruitment to assess whether banks’ hiring and training policies support good governance and compliance.

“Operational resilience and cybersecurity” is another key focus point for the OCC. This covers most aspects of digitalization for banks, as well as incident response, information security and backup, and risk management.

Connected to this, the OCC also plans to scrutinize banks’ oversight of third party suppliers, including cybersecurity measures and concentration risks.

The regulator also plans to step up its oversight of partnerships with financial technology firms and banks’ work with digital assets to ensure security and compliance in this growing area of interest.