OCC Annual Report: State of the Federal Banking System

The Office of the Comptroller of the Currency (OCC) has published its 2022 Annual Report, which provides Congress with an overview of the condition of the federal banking system, discusses the OCC's strategic priorities and initiatives, and shares the OCC’s financial management and condition.

The OCCs Annual Report highlights the OCC's work to foster and safeguard trust–trust between financial providers and their consumers, trust between regulators and supervised institutions, trust that banks will not exploit working or vulnerable Americans, and trust among financial regulators to work together to solve broad problems.

“Banking rests on this trust,” said Michael J. Hsu, Acting Comptroller of the Currency. “My key priorities at the helm of the OCC—guarding against complacency, addressing inequality, adapting to digitalization, and managing climate risk—reflect what I see as the key long-term threats to trust in banking.”

The OCC has been an active member of the interagency Property Appraisal and Valuation Equity (PAVE) Task Force since its inception to address appraisal bias. PAVE developed a plan that advances property appraisal and valuation equity to help close the racial wealth gap and address mis-valuations for families and communities of color.

“In March, I issued a statement that the OCC is committed to carrying out the actions recommended by the PAVE task force to help ensure greater federal oversight and effective monitoring for discrimination in appraisals and technology-based valuations of residential property,” said Hsu. “We will use our supervisory authority to advance racial equity consistent with our mission to ensure our regulated institutions provide fair access to financial services and treat customers fairly.”

As the Report notes, the U.S. financial system is more protected from instability because of the extraordinary efforts of Congress, the federal banking agencies, the Financial Stability Oversight Council (FSOC), and banks themselves; however, threats remain.

• Risk Environment: Empowering risk managers and enforcing discipline in risk-taking will enable banks to better navigate the rate environment and lower the chances of unwelcome surprises. Actions taken by the OCC to cover high-impact tail risks can temper the need to go full “risk-off” tomorrow, ensuring that the banking industry can remain a source of strength to the economy, as it has throughout the pandemic and recent market turbulence.
• Maintaining Cybersecurity Vigilance: The OCC notes the importance of banks investing in building a secure and resilient infrastructure, maintaining effective cybersecurity controls, and collaborating through public/private partnerships to strengthen the defense of the financial sector.

Throughout 2022, the OCC worked on a proposal to modernize regulatory framework of the Community Reinvestment Act (CRA) regulatory framework, made strides to improve access to banking services for minority and low- to moderate-income communities, worked on a plan that advances property appraisal and valuation equity, and expanded our work to address key barriers to financial inclusion. These steps move us in the right direction toward a level playing field and building trust in the system.

In May, the OCC joined other federal banking agencies in May 2022 to issue a joint notice of proposed rulemaking (NPR) to strengthen and modernize regulations implementing the CRA and better achieve the purposes of the law. The OCC received feedback and is currently reviewing those comments.

Continuing its push to foster financial inclusion, the OCC has sponsored OCC-sponsored initiative to address key barriers to financial inclusion. Through Project REACh, the OCC convenes leaders from banking, business, technology, and national civil rights organizations to reduce specific barriers that prevent full, equal, and fair participation in the nation’s economy. Project REACh’s work is divided into four national workstreams addressing affordable homeownership, inclusion for credit invisibles, revitalization of MDIs, and access to capital for small and minority-owned businesses. Adding on to previous REACh initiatives, the OCC launched new local REACh initiatives in 2022 in the greater Detroit, Dallas, and Milwaukee communities to provide regional forums to support financial inclusion for hardworking Americans.

The OCC also issued its Strategic Plan for Fiscal Years 2023–2027, which serves as a road map for the next five years and pushes the OCC to look beyond familiar habits and day-to-day work to meet the key challenges of the future.

“Every five years, the OCC updates its strategic plan,” added Hsu. “In September, we adopted a strategic plan for fiscal years 2023-2027. The plan builds off of the themes and priorities highlighted in this report, but takes a longer-term view on trends, risks, and opportunities facing the banking industry.”

As highlighted in the OCC’s Strategic Plan, to be effective in the longer term, the OCC and its workforce aim to achieve strategic goals under the following ideals:

• Agility and Learning—the OCC learns and adapts effectively.
• Credibility and Trust—the OCC is highly credible and consistently trusted.
• Leadership—the OCC leads on supervision as the banking system evolves.

“Every day that I come into the office, I walk past our mission statement, lit up elegantly, yet formidably on the wall of our main entrance at the OCC’s headquarters,” said Hsu. “Each time I do, I feel humbled, motivated, and grateful to be leading an agency with such a clear and consequential focus and with such experienced staff. Leadership changes are a natural part of every dynamic organization. We said farewell to three members of our Executive Committee this year: Blake Paulson, Kathy Murphy, and Sydney Menefee. The OCC benefitted from their strong leadership. In their places, we welcomed Jay Gallagher, Minh-Hai Tran-Lam, and Beverly Cole as new leaders to the OCC Executive Committee. We are blessed to have a deep bench to foster and safeguard trust in the federal banking system for years to come.”