# 2023 Annual Report

Read about the OCC's strategic priorities, financial management, and regulatory and policy initiatives from 2023.

      - Read the Comptroller's Viewpoint
      - View the Annual Report
      - View Key Data & Statistics

# Comptroller's Viewpoint

February 25, 2023, marked the 160th anniversary of the National Currency Act and the creation of the OCC. Charged with organizing and administering a system of nationally chartered banks and a uniform national currency, the OCC has steadfastly served the American public. The OCC's mission—ensuring that national banks and FSAs operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations—fosters trust in banking and in the OCC. Looking back over the OCC's long history, the outsized importance that public trust plays in maintaining a thriving and stable banking system is apparent.

Since 1863, safeguarding public trust has been central to the OCC's mission. Trust cannot be engineered, manufactured, or bought. Trust must be earned, carefully maintained, and vigorously protected. My four key priorities—guarding against complacency, reducing inequality, adapting to digitalization, and acting on climate-related financial risks—focus the OCC's efforts to maintain the public's trust in banking and banks' trust in the OCC.

To understand, measure, and track the public's trust in banks and banking supervision over time, in June the OCC published a request for information to gather input on a proposed new annual survey.1 By conducting an annual survey on trust in banking, my hope is that banks, regulators, and community organizations will be better able to hold each other accountable for safeguarding trust in banks and the banking system. This proposed survey supports the OCC's strategic plan goal to focus on credibility and trust.2 The survey's aim is to establish a rich set of data points capturing trends in and drivers of consumers' trust in banking that could inform policymaking, supervision, community advocacy priorities, and bank products and services.3

A liquidity crisis and market stresses early in calendar year 2023 threatened public trust in the banking system. While OCC-supervised banks remained a source of strength for the U.S. economy and no OCC-supervised banks failed, bankers and regulators alike must guard against complacency and sustain focus on safety and soundness principles. Based on my perspective as Acting Comptroller and 20 years of experience as a financial regulator, I made four observations about actions that could be taken to restore full confidence and trust in the banking system: (1) bank supervisors need support to act in a timely and effective manner, (2) regulations regarding the resilience and resolvability of large banks need to be strengthened, (3) deposit insurance coverage should be updated, and (4) the diversity of the banking system must be preserved as the industry evolves.4
5

## Guarding Against Complacency

Guarding against complacency is essential to building and maintaining trust in the banking system. The spring 2023 market disruption demonstrated the effects that stress at a few regional banking organizations could have on the stability, confidence, and trust in the banking system. The period of financial stress serves as a timely reminder of the need to increase the overall resilience of the banking system. In July, the bank regulators invited public comment on a proposal that would implement the final components of the Basel III agreement.6 While the events of last spring may be attributed to a variety of factors, the effect on financial stability supports further alignment of the regulatory capital framework across all large banking organizations with $100 billion or more of assets.

It is important that bank management correct weaknesses in a timely manner to maintain public trust. In alignment with our mission, we updated the OCC's *Policies and Procedures Manual* for bank enforcement actions to address consideration of actions against large banks that exhibit or fail to correct persistent weaknesses.7 The revised policies and procedures promote effective risk management by making clear that bank management's failure to correct persistent weaknesses in response to prior enforcement actions or other measures will result in proportionate, fair, and appropriate consequences, including growth restrictions and divestitures when warranted. These guardrails are especially important today as banks choose to grow to better serve their customers, improve their competitiveness, and achieve economies of scale. As banks become more complex and larger, risk management functions must remain commensurate.

Additionally, in January, the OCC's revised civil money penalty (CMP) manual became effective. Revisions discourage complacency by allowing for sufficient differentiation among varying types of misconduct or by institution size. We also updated the mitigating factors to provide a stronger incentive for banks to fully address underlying deficiencies. The revised CMP matrix for OCC-supervised institutions further builds and maintains trust by strengthening the effectiveness and fairness of our enforcement actions.8

Similarly, regulators cannot become complacent in the critical work that we do. The framework for analyzing bank mergers needs updating. Without enhancements, the risk of mergers that diminish competition, hurt communities, or present systemic risks increases.9 In February, the OCC hosted a symposium on bank mergers, which included panel discussions among thought leaders, academics, community groups, and the banking industry.10 The OCC will use information from this symposium and other feedback as our efforts to consider updates to the bank merger framework proceed.

### Risk Environment

It is important that banks and banking regulators be agile in responding to changes in the risk environment to maintain public trust. The OCC's *Semiannual Risk Perspective*(SARP), issued each spring and fall, highlights key risks facing the federal banking system.11 The SARP communicates our priorities as bank supervisors and key risks that the OCC expects bankers to be attentive to and prudently manage.12

Banks' relationships with third parties, including financial technology (fintech) companies, continue to expand. The use of third parties has significant potential benefits, but poor risk management may result in adverse effects that erode public trust. At the Financial Data Exchange Global Summit in April in Raleigh, N.C., I spoke on the evolution of banks enabling consumer-permissioned sharing of financial data with third parties, also known as "open banking," and its potential impact on the OCC's supervision. A wide range of entities engage in banking activities to some degree, and banks rely significantly on nonbanks to operate. Open banking is evidence of this trend; this decoupling of banks and banking, however, raises a host of questions for banks and supervisors regarding regulation, competition, and culture.13

To provide guidance to banks with their risk management of third parties, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC jointly issued "Interagency Guidance on Third-Party Relationships: Risk Management."14 This document confirms banks' responsibility to operate in a safe and sound manner and in compliance with applicable laws and regulations regardless of whether bank activities are performed in-house or outsourced. The guidance also recognizes that not all third-party relationships reflect the same level of risk and therefore not all require the same level of risk management. The principles set forth in the guidance support effective risk management for all types of third-party relationships.

Bank regulators and bankers must remain agile and consider emerging risks. To that end, and to support the OCC's strategic goal to lead on supervision as the banking system evolves, we have actively pursued opportunities to engage with various stakeholders to discuss emerging risks. The OCC solicited academic research papers on emerging risks in the banking system and related policy and supervisory issues, and the agency hosted authors to present their research to OCC staff in June.15 In August, I spoke at the South East Asian Central Banks' High-Level Seminar and Meeting of Deputy Governors of Financial Stability, Supervision, and Payments in Malaysia. This annual event brought together senior regulators and central bankers to discuss issues relating to financial stability, innovations, and emerging risks. The discussion addressed nonbank financial intermediaries, digitalization and digital money, cybersecurity, climate-related financial risks and sustainable finance, as well as other emerging risk topics.

### Other Actions Taken to Guard Against Complacency

The OCC took additional actions to guard against complacency by issuing policy statements and updating examination manuals this year.

In 2023 businesses continued to navigate the shift from in-person to remote work. Additionally, economic headwinds continued to pressure both consumers and businesses. In response to the resulting increasing risk in commercial real estate (CRE), the OCC, Federal Reserve Board, the FDIC, and the National Credit Union Administration (NCUA), in consultation with state bank and credit union regulators, published the "Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts."16 The statement replaces the 2009 interagency guidance on CRE loan workouts and reflects the OCC's commitment to build trust by collaborating with other agencies to ensure consistent supervision and to provide timely guidance that reflects current best practices.

The OCC issued guidance on addressing the risks associated with overdraft protection programs, which include certain practices that may present heightened risk of violating prohibitions against unfair or deceptive acts or practices.17 When supported by appropriate risk management practices, overdraft protection programs may assist some consumers in meeting short-term liquidity and cash-flow needs.

The FFIEC also updated several sections of the *FFIEC Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual* to reinforce the risk-focused approach to BSA/AML examinations. The updates reflect the OCC's commitment to improving the effectiveness of the BSA/AML regime and reducing burdens on banks.18

## Reducing Inequality in Banking

Another area essential to building and maintaining trust in the banking system is reducing inequality in banking. Equity and fairness are preconditions for trust. Ensuring that financial services are offered responsibly and fairly takes continual effort and vigilance by banks, regulators, community advocates, and other stakeholders. Public trust in banks can enable a virtuous cycle between banks and the communities they serve.

At the November 2022 Community Reinvestment Act & Fair Lending Colloquium, Senior Deputy Comptroller for Bank Supervision Policy Grovetta Gardineer reinforced the OCC's commitment to elevating fairness and ensuring that the federal banking system provides fair access and treats customers fairly. She noted that enforcement of both the Fair Housing Act and the Equal Credit Opportunity Act (ECOA) is critical to address discriminatory lending practices that create and exacerbate racial inequity in the financial system.19

The OCC is an active member of the interagency Property Appraisal and Valuation Equity (PAVE) Task Force to address bias in appraising real estate. PAVE is a first-of-its-kind interagency task force dedicated to identifying concrete actions that agencies have committed to take to eliminate bias and advance equity in home appraisals.

To further the discussion on appraisal bias in home valuations, in June the OCC and our interagency counterparts published a request for comment on proposed interagency guidance on reconsiderations of value (ROV) of residential real estate.20 The proposed interagency guidance highlights the risks of deficient collateral valuations, outlines applicable statutes, regulations, and existing guidance that govern ROVs; explains how ROVs can be incorporated into existing risk management functions; and provides examples of ROV policies and procedures banks may choose to adopt. We will consider the comments as they relate to the utility, relevance, comprehensiveness, and clarity of the proposed guidance.

With our interagency counterparts, the OCC also proposed a rule in June designed to implement quality control standards for automated valuation models (AVM) used by mortgage originators and secondary market issuers in valuing residential real estate.21 The proposed standards are designed to ensure a high level of confidence in the estimates produced by AVMs, help protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews, and promote compliance with applicable nondiscrimination laws.

### Supporting Community Banks

The OCC is committed to promoting a vibrant and diverse banking system. This diversity helps the system remain healthy, meet our nation's financial services needs, and be capable of adapting to change and withstanding adversity. A vibrant and diverse system comprises a broad spectrum of institutions, including community banks and minority depository institutions, community development financial institution banks, mutual savings associations, and FSAs. Supporting them is critical to our mission and vision.

The OCC significantly reduced assessments on the smallest banks in 2023.22 The reduction provided to community banks helps with the cost of supervision compared to state community bank charters and provides community banks with extra capacity to invest in digitalization, compliance, cybersecurity, and personnel. The OCC continues to pursue efficiencies to ensure that the 2023 assessment rates will provide the agency with sufficient resources to recruit, train, and retain the talent and experience necessary to perform its important mission and continue to invest in initiatives that improve the agency's ability to maintain the safety, soundness, and fairness of the federal banking system.

### Financial Inclusion

In April, we hosted the second discussion in our Financial Health: Vital Signs initiative. This livestream discussion aimed to explore the importance of assets for financial health.23 We are committed to promoting financial health as the core purpose of banking: to help people have financial stability so they can fulfill their regular financial obligations, have resilience to handle adverse circumstances, and have security for their future.

In September, U.S. Department of Housing and Urban Development Secretary Marcia L. Fudge, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra, and Federal Housing Finance Agency (FHFA) Director Sandra L. Thompson joined me to call attention to the availability of special purpose credit programs (SPCP) to help meet the credit needs of eligible individuals. As creditors consider how they may expand access to credit to better address underserved individuals and communities, our agencies encourage creditors to explore opportunities to develop special purpose credit programs consistent with the ECOA, Regulation B, and safe and sound lending principles.

As we continue to make progress on financial inclusion, it is important to remember that consumers' financial health, as it relates to bank services, extends beyond the ability to open an account or secure a loan. Treating consumers fairly builds trust. The FFIEC's Task Force on Consumer Compliance adopted the revised examination procedures for the Fair Debt Collection Practices Act and its implementing regulation, Regulation F.24 The revised interagency examination procedures incorporate the CFPB's 2020 and 2021 Fair Debt Collection Final Rules that went into effect November 30, 2021. The revised interagency examination procedures address determinations, prohibitions, and requirements to safeguard consumers.

### Project REACh

Project REACh, which stands for the Roundtable for Economic Access and Change, brings together leaders from the banking industry, national civil rights organizations, business, consumer groups, and technology to reduce specific barriers that prevent full, equal, and fair participation in the nation's economy. The four national workstreams under Project REACh claimed several accomplishments this year.
      - The Alternative Credit and Financial Access Workstream  brings together stakeholders seeking access to credit for individuals with no credit files. Four participating financial institutions launched Demand Deposit Account Second Chance Loan pilot programs this year.
      - The Homeownership Workstream  hosted a "matchmaking" session for tribal members of the National American Indian Housing Council at the organization's Legal Symposium. The session was designed to encourage partnership between banks and tribes/tribal entities. tribal representatives presented and solicited financial institution support for lending and investment proposals related to housing and community development projects within tribal areas.
      - The Minority Depository Institutions (MDI) Revitalization Workstream  launched the MDI Rotational Program where participants embedded employees from larger banks in MDIs for up to a year to share their expertise and help grow specialized business lines. This approach provided a model to strengthen relationships between larger banks and MDIs.
      - The Small and Minority Business Opportunities Workstream  participants launched a SPCP Resource Hub for small business lenders to increase awareness among the banking industry about SPCPs. 25

### High School Scholars Internship Program

The OCC hosted the fifth year of its High School Scholars Internship Program (HSSIP), a paid summer internship that provides students and graduates of Washington, D.C., high schools with professional experience that gives them insight into the financial services regulatory sector. This program supports the agency's commitment to increasing diversity in our future workforce. This year, 19 high school seniors and four high school graduates participated in HSSIP. The program also supported 13 high school interns who were placed at the FHFA and NCUA. In addition to HSSIP, nine College Apprenticeship Program interns gained valuable professional skills and experience at the OCC.

### OCC Employee Diversity and Inclusion

Building a workforce of dedicated employees from varying backgrounds with diverse perspectives helps ensure that the federal banking system remains safe, sound, fair, and a source of economic strength to individuals and communities across the country.

The OCC's nine employee network groups (ENG) provide employees with supportive workplace communities and host events, programs, newsletters, and meetings. The ENGs are a forum to discuss workforce issues, improve the agency's effectiveness, and support our strategic goal of a diverse workforce.

In July, the OCC received the Spotlight Impact Award from Talent Dimensions, a career development and employee engagement firm. Talent Dimensions recognized the OCC for its exemplary efforts in sponsoring career development opportunities and mentoring sessions through its ENGs. The executive sponsors were also applauded for their efforts in promoting the importance of the ENGs' work to OCC employees.

Finally, fostering an environment and culture that strongly promotes a safe, fair, and inclusive workplace is imperative, speaks to the OCC's values, and is fundamental to achieving the agency's mission. With the senior leadership team, I have made clear that harassment, discrimination, misconduct, and retaliation have no place at the OCC.

## Adapting to Digitalization

The digitalization trend, including mobile and application-based banking and blockchain technology, has been underway for some time, but has accelerated in recent years. Digitalization continues to provide exciting new opportunities in the banking system and requires effective adaptation to maintain financial stability and public trust. Successful adaptation involves a move toward comprehensive use of digital technologies to compete and support evolving customer needs and expectations, especially regarding open banking and bank-fintech partnerships.

In October 2022, the OCC announced the intention to establish the Office of Financial Technology26 (OFT) that would build on and incorporate the Office of Innovation. The OFT, established in April 2023, bolsters the agency's expertise and ability to adapt to the rapid pace of technological changes in the banking industry. The OFT broadens the OCC's focus in this area and ensures the agency's agility to provide high-quality supervision of bank-fintech partnerships. It will further enhance the agency's expertise on financial technology platforms and applications in support of the OCC's mission.

### Cybersecurity

Protecting customer data and assets from cyberattacks remains a high priority in maintaining public trust. As cyberattacks evolve and banks adopt various standardized tools and frameworks to assess cybersecurity preparedness, the OCC recognizes the need to update its supervisory approach to cybersecurity assessments. The Cybersecurity Supervision Work Program provides high-level examination objectives and procedures aligned with existing supervisory guidance and the National Institute of Standards and Technology Cybersecurity Framework.27 The OCC continues to encourage, but does not require, use of standardized approaches to assess and improve cybersecurity preparedness. Banks may choose from a variety of tools and frameworks available.

### Digital Assets

The OCC is working with stakeholders to address the risks and opportunities presented by digital assets while working to protect consumers and businesses and ensure the continued stability of the U.S. financial system. The 2022 FSOC *Report on Digital Asset Financial Stability Risks and Regulation* identified the most significant financial stability risks that crypto-assets, activities, and markets may pose to the broader financial system.28 The federal banking agencies issued two joint statements reminding banks of supervisory risk management and liquidity expectations regarding crypto-assets and exposures,29 and I emphasized the importance of financial regulators not lowering their standards.30

Tokenization of real-world assets and liabilities, on the other hand, is driven by solving real-world settlement problems and can be developed in a safe and sound manner and fully compliant with anti-money laundering rules. It has the potential to improve settlement efficiency by minimizing lags and reducing the associated frictions, costs, and risks.31

Work remains to be done, both by the industry and by the regulators, to ensure that tokenization innovations can be sustained and trusted over time. The newly established Office of Financial Technology will allow the OCC to keep up with developments more easily, to engage banks more actively, to educate examiners and policy staff more effectively, and to collaborate with peer agencies more regularly.
32

## Addressing Climate-Related Financial Risk

Addressing climate-related financial risk is another way of building and maintaining trust in the banking system. The OCC's efforts are directed at banks with $100 billion or more in total consolidated assets.33 These efforts are firmly rooted in our safety and soundness mandate. The OCC has been working with the FDIC and Federal Reserve on joint principles, which further our common objective of promoting safe and sound climate-related financial risk management practices.34

As part of our focus, the OCC is conducting exploratory reviews at banks with $100 billion or more in total consolidated assets to develop a baseline understanding of the banks' climate-related financial risk management. Large bank management is in varying stages of incorporating climate-related financial risks in their strategic planning processes and understanding the effects of these risks on their financial condition and operations over different time horizons.

## Conclusion

The OCC's talented workforce and a dedicated executive leadership team is focused on safeguarding trust in the federal banking system and maintaining our mission of ensuring that the federal banking system is safe and sound and treats customers fairly. This focus has driven the OCC for 160 years and will guide the agency for years to come.

 

*Michael J. Hsu*

1 See OCC Bulletin 2023-19, "Bank Management: Request for Information on Proposed Annual Consumer Trust in Banking Survey."

2 See Office of the Comptroller of the Currency Strategic Plan for Fiscal Years 2023–2027.

3 See OCC News Release 2023-57, "Acting Comptroller Discusses Trust and Banking."

4 See OCC News Release 2023-45, "Acting Comptroller of the Currency Testifies on Bank Supervision."

5 See OCC News Release 2023-45, "Acting Comptroller of the Currency Testifies on Bank Supervision."

6 See OCC Bulletin 2023-24, "Regulatory Capital: Notice of Proposed Rulemaking to Revise Requirements for Large Banking Organizations and Banking Organizations With Significant Trading Activity."

7 See OCC Bulletin 2023-16, "OCC Enforcement Actions: Revised Policies and Procedures Manual for Bank Enforcement Actions and Related Matters."

8 See OCC News Release 2022-143, "OCC Revises Civil Money Penalty Manual."

9 See "Acting Comptroller of the Currency Michael J. Hsu, Opening Remarks for the OCC Bank Merger Symposium, February 10, 2023."

10 See OCC News Release 2023-15, "OCC Chief Counsel Discusses Bank Mergers."

11 See OCC News Release 2023-60, "OCC Report Identifies Key Risks Facing Federal Banking System."

12 See OCC News Release 2023-61, "Acting Comptroller Issues Statement on Key Risks Facing Federal Banking System."

13 See OCC News Release 2023-38, "Acting Comptroller Discusses Open Banking."

14 See OCC News Release 2023-53, "Agencies Issue Final Guidance on Third-Party Risk Management."

15 See OCC News Release 2023-10, "OCC Solicits Research on Emerging Risks in the Banking System."

16 See OCC Bulletin 2023-23, "Credit Administration: Final Interagency Policy Statement on Prudent Commercial Real Estate Loan accommodations and Workouts."

17 See OCC Bulletin 2023-12, "Overdraft Protection Programs: Risk Management Practices."

18 See OCC Bulletin 2023-26, "Bank Secrecy Act/Anti-Money Laundering: updated Sections of the FFIEC BSA/AML Examination Manual."

19 See OCC News Release 2022-136, "Senior Deputy Comptroller Discusses Efforts to Ensure Fair Lending."

20 See OCC Bulletin 2023-18, "Real Estate Appraisals: Notice and Request for Comment on Proposed Interagency Guidance on Reconsiderations of Value of Residential Real Estate."

21 See OCC Bulletin 2023-21, "Quality Control Standards for Automated Valuation Models: Notice of Proposed Rulemaking."

22 See OCC News Release 2022-145, "OCC Reduces 2023 Assessments on National Banks and Federal Savings Associations."

23 See OCC News Release 2023-48, "Acting Comptroller Discusses Financial Inclusion."

24 See OCC Bulletin 2022-26, "Fair Debt Collection Practices Act: Revised Interagency Examination Procedures and Rescissions."

25 See American Bankers Association Press Release, "ABA Launches New Webpage Highlighting Programs Designed to Improve Access to Capital for Underserved Small Businesses."

26 See OCC News Release 2022-133, "OCC Announces Office of Financial Technology."

27 See OCC Bulletin 2023-22, "Cybersecurity: Cybersecurity Supervision Work Program."

28 See OCC News Release 2022-123, "Acting Comptroller of the Currency Issues Statement on FSOC's Report on Digital Asset Financial Stability Risks and Regulation."

29 See OCC News Release 2023-1, "Agencies Issue Joint Statement on Crypto-Asset Risks to Banking Organizations," and OCC News Release 2023-18, "Agencies Issue Joint Statement on Liquidity Risks Resulting from Crypto-Asset Market Vulnerabilities."

30 See OCC News Release 2022-126, "Acting Comptroller Discusses Crypto and the Regulatory Perimeter."

31 See OCC News Release 2023-64, "Acting Comptroller Discusses Tokenization, Artificial Intelligence."

32 See OCC News Release 2023-44, "Acting Comptroller of the Currency Testifies on Prudential Regulation."

33 See OCC News Release 2023-73, "Senior Deputy Comptroller for Large Bank Supervision Testifies on Climate-Related Financial Risks."

34 See OCC News Release 2022-152, "Acting Comptroller Provides Statements at Financial Stability Oversight Council Meeting."

      - View the Annual Report
      - View Key Data & Statistics