By Barry Wides, CPA
Managing Director, Artisan-Advisors 

On June 30, 2025, the Office of the Comptroller of the Currency (OCC) released its Semi-Annual Risk Perspective (SARP), a 20-page summary of key issues impacting the federal banking system. This report outlines several supervisory issues that may be useful for banks in anticipating areas of focus during upcoming exams.

Commercial Credit Risk

In commercial lending, the SARP identifies refinancing risk as a growing concern, particularly for loans originated during periods of low interest rates. This includes loans to highly leveraged borrowers or small, lower-rated firms with upcoming debt maturities and limited financial flexibility. These loans, including commercial real estate loans underwritten in a low-rate environment, are particularly vulnerable to refinancing risk, especially those with interest-only payment terms. Many of these loans are secured by properties that have lost significant value or experienced declines in net operating income, making it more difficult for borrowers to secure new financing on favorable terms.

The SARP also highlights the potential risks posed by trade disruptions due to tariffs and geopolitical tensions, which can reduce profit margins for industries unable to pass increased import costs to consumers. Additionally, Export-heavy industries may be negatively impacted by shifts in global tariff policies.

The SARP notes that, agricultural producers, particularly those reliant on exports like soybeans and corn, may face challenges due to shifts in global trade policies. The SARP warns that agricultural commodity prices remain below historical averages, increasing risk for banks with concentrations in agricultural lending.

A growing concern noted in the report is the increasing lending to non-depository financial institutions (NDFIs). Outstanding loans to NDFIs rose by 6.5% from 2022 to 2023, and by 22.5% from 2023 to 2024, now representing 9% of total loan balances in the federal banking system. The Financial Stability Oversight Council (FSOC) 2024 Annual Report also raised concerns about the risks of private credit, noting that the lack of transparency in direct lending to businesses by nonbank institutions could pose risks to both credit and liquidity. The SARP also points to venture lending—loans to early- to late-stage companies—as an area for increased examiner scrutiny, especially for loans lacking an adequate assessment of the borrower’s repayment capacity.

Retail Credit Risk

The SARP finds that delinquencies in credit cards and automobile loans are rising. Credit card charge-offs reached 4.3% in 2024 – a full percentage point higher than the 3.3% level in 2023. For auto loans, the 90-day delinquency rate increased by 30 basis points from the fourth quarter 2023 to the fourth quarter 2024, reaching 2.96%. Additionally, the SARP notes that some banks have temporarily paused reporting delinquencies to allow borrowers time to qualify for account re-aging under workout programs. While these programs support borrowers facing short-term hardship, they may obscure the true level of delinquency in the portfolio if not managed carefully.

The SARP also highlights the climate-related risks facing banks. Recent hurricanes, wildfires, and other natural disasters have raised concerns about insurance coverage and how banks manage residential real estate collateral. Key risks include gaps or lapses in insurance, inadequate protection of the collateral, unusual policy terms or exclusions, and questions about whether blanket bond insurance can cover losses not insured by standard policies. Rising costs—especially higher taxes and sharp increases in flood and homeowners’ insurance premiums—are creating affordability pressures in some areas, which may make it harder for borrowers to repay their debts.

Liquidity Risk

With regard to liquidity risk for banks with less than $1 billion in assets, the SARP found that unrealized portfolio losses in banks’ “available for sale” portfolios amounted to approximately 9 percent as of the end of 2024. The report noted that exposure to unrealized losses in investment portfolios continues to underscore the importance of operational readiness to access alternative funding sources. The SARP pointed out that “banks can use liquidity stress testing as part of contingency planning to help identify model reliability and access investment portfolio liquidity without exposing earnings and capital to realized losses.” This message is consistent with 2023 interagency guidance on contingency funding planning.

Operational Risk

Operational risk continues to be a significant concern, particularly as cybercriminals continue to target banks and their service providers. At the same time, banks are relying more on third parties, including fintech firms, which expands their vulnerability to cyberattacks. The OCC continues to see ransomware attacks affecting banks of all sizes, underscoring the need for strong operational resilience, including regular testing of business continuity and incident response plans.

The SARP also notes a rise in ATM jackpotting, where criminals, sometimes posing as service technicians, tamper with ATM security systems to force machines to dispense cash. Tactics may include using a universal key to open the ATM, installing malware, connecting unauthorized devices, or placing a device between the ATM’s computer and network cable. Banks are urged to implement strong cybersecurity measures such as keeping software and systems updated, using security cameras and alarms, replacing universal keys, and continuously monitoring ATM activity.

The SARP also addresses the growing risk of insider abuse, highlighting how employees may misuse access to manipulate data, steal assets, commit fraud, or sell sensitive information. Mobile phones and other personal electronic devices make it easier to capture and steal customer data, particularly when used in secure areas of the bank. OCC noted that controls like mandatory vacations and job rotations can help reduce risk by ensuring no single employee maintains exclusive control over critical tasks.

The SARP points out that criminals continue to exploit traditional payment methods, frequently targeting checks, wire transfers, peer-to-peer platforms, and even bank insiders. Common and evolving fraud schemes include social engineering, phishing, account takeovers, business email compromise, impersonation (e.g., pretending to be executives, government officials, or tech support), romance and investment scams, and identity theft. OCC reminded banks that ongoing training can help bank staff recognize red flags, especially when customers attempt transactions that fall outside their usual patterns. Bank regulators are acknowledging that they can play an increasing role in addressing payments fraud. On June 16, federal banking agencies issued a Request for Information (RFI) seeking public input on potential actions to combat rising payments fraud—particularly check fraud. Comments will be accepted through mid-September 2025.

Conclusion

The SARP provides valuable insights for banks, highlighting key areas of risk that are likely to be scrutinized during upcoming exams. By staying informed about these trends—ranging from commercial credit risks and rising delinquencies to the threats posed by cybercrime and fraud—banks can better prepare for regulatory scrutiny and mitigate potential risks. For further information about the SARP or how to manage these risks, please feel free to contact me at [email protected].