Learning from the OCC’s Semi-Annual Risk Perspective Report

Last Friday the OCC released its Semi-Annual Risk Perspective report. A key finding of the report is that increased competition among financial institutions has resulted in increased credit risk due to the weakening of underwriting standards as well as the increased layering of risk in credit products such as indirect auto lending. In this environment, OCC regulatory priorities will include:

  • Continued emphasis on bank governance of risk management practices.
  • Reviewing commercial and retail credit underwriting practices especially for leveraged loans, indirect auto and commercial loans.
  • Focusing on compliance with new and existing regulations.
  • Encouraging banks to lend to credit worthy borrowers.
  • Monitoring compliance with CRA, fair lending and other consumer protections laws.

With respect to indirect auto loans, the OCC report indicates that amounts financed and LTVs continue to rise due to add-on products and extended warranties. The effect of this phenomenon is that loan terms are extending. The share of 73-84 month loans relative to the total market doubled for new vehicles (12% to 24%) and used vehicles (7% to 14%). The impact of higher amounts financed, higher LTVs and longer loan terms may be riskier indirect auto loan portfolios that need to be closely monitored.

If you want to read the complete report, please visit http://www.occ.gov/publications/publications-by-type/other-publications-reports/semiannual-risk-perspective/semiannual-risk-perspective-fall-2014.pdf

 

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