Risk Management & Analytics: In wake of Federal Reserve report, ‘signs of developing risks’

In wake of Federal Reserve report, ‘signs of developing risks’

Following the release of the Federal Reserve’s inaugural Financial Stability Report, National Association of Federal Credit Unions (NAFCU) Chief Economist and Vice President of Research Curt Long said economic growth is strong, but “there are signs that risks are developing.”

“Corporate debt is one key area to watch, as years of easy money have contributed to a rise in debt levels,” Long cautioned.

The Financial Stability Report revealed that business-sector debt relative to the GDP “is historically high and there are signs of deteriorating credit standards.” Household borrowing, alternatively, “is at a low-to-moderate level relative to incomes,” the report found.

Read more: CU Today

US encourages banks to innovate in anti-money laundering compliance

Banks that find problems with legacy compliance programs when testing new technology won’t necessarily be penalized for prior failures, U.S. regulators said Monday.

The pledge, in a statement from multiple U.S. regulatory agencies, comes as authorities encourage lenders to try out new technology and intelligence-gathering methods as they combat evolving illicit-finance threats.

“Private sector innovation, including new ways of using existing tools or by adopting new technologies, can be an important element in safeguarding the financial system against an evolving array of threats,” Sigal Mandelker, the U.S. Treasury Department undersecretary for terrorism and financial intelligence, told lawyers and compliance officers Monday during a speech in Oxon Hill, Md., at a financial crimes enforcement conference hosted by the American Bankers Association and the American Bar Association.

Read more: Wall Street Journal

OCC: Swelling corporate debt could come back to bite banks

Banks’ heavy involvement in the corporate debt markets could make them more vulnerable in a sudden downturn, the Office of the Comptroller of the Currency (OCC) said Monday.

The agency’s semiannual report on looming risks in the industry placed a heavy focus on the high volume of commercial loans as well as banks’ exposure to nonfinancial corporate debt, which is near a record share of GDP. The OCC also repeated concerns about the growth of lending to highly leveraged companies.

In a conference call accompanying the release of the Semiannual Risk Perspective, Comptroller Joseph Otting said a bigger risk with leveraged lending is occurring outside the banking industry, but he said banks should be vigilant about underwriting commercial borrowers.

Read more: American Banker

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