Regulators See Credit Risks Increasing

Regulators at two recent conferences offered insights into what problems they are seeing at community banks, according to Invictus executives who attended the seminars in California and Nebraska.

The Federal Reserve sees interest rate risk as a central issue, though credit risk is coming in a close second. Banks are beginning to breach their CRE thresholds, a concentration risk that led to bank failures during the financial crisis.

The OCC is also looking closely at credit risk. The OCC expressed some surprise that not all community banks have chief risk officers.

In addition to interest rate risk, the FDIC said it was seeing many banks buying investments and securities they didn’t understand. Banks need to do better due diligence and monitor their unrealized losses, even if they are not required to hold capital against those losses. The FDIC also indicated that banks with increased interest rate risks would get closer scrutiny of the S component in their CAMELS composite.