On September 28, the Office of the Comptroller of the Currency released their 2024 Operating Plan (Linked here), which indicates the areas they intend to focus their supervisory resources on in 2024 in response to emerging risks.  It should come as no surprise that safety and soundness related topics will continue to be a high priority next year.  Specific areas of focus include:

Asset and liability management: “Examiners should determine whether banks are managing interest rate and liquidity risks through the use of effective asset and liability risk management policies and practices, including stress testing across a sufficient range of scenarios, sensitivity analyses of key model assumptions and liquidity sources, and appropriate contingency planning.” The regulator also indicated that examinations would include back-testing to assess whether models performed accurately during recent stress events.

Credit: “Examiners should evaluate the effectiveness of banks’ actions to identify and manage credit risk given significant changes in market conditions, interest rates, and geopolitical events.” They also indicated that examiners would focus on concentration risk management, higher-risk loan portfolios such as commercial real estate, risk rating accuracy, loss mitigation practices, and bank risk management functions. This was also an area of focus for 2023.

Allowance for credit losses (ACL): “Examiners should determine the effectiveness of banks’ ACL methodologies at estimating lifetime expected credit losses considering present economic conditions and expectations over a reasonable and supportable forecast period.” Examinations will also focus on the documentation of ACL processes and assumptions and model risk management. This was also an area of focus for 2023.

We also expect that interest rate risk and liquidity risk management, which are current areas of focus, will continue to receive scrutiny in 2024.

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Now is a good time to start reviewing policies and procedures relating to these areas of focus to avoid any unpleasant surprises during upcoming regulatory examinations.

Doran Jones can provide regulatory compliance and risk management expertise combined with the extensive technological knowledge and experience to design and implement a cost-effective solution that will increase efficiency and lower risk by upgrading your risk and compliance systems or identifying and remediating gaps in existing processes.

Contact us to learn how a strategic partnership with Doran Jones can provide you with cost-effective solutions by leveraging our expertise with these and other critical risk and compliance functions.