OCC Sees a Resilient Banking System, but Warns Cyber Threats, Fraud, & Innovation Gaps Are Becoming Structural Risks

Key Takeaways

• System Remains Sound: Capital, liquidity, and earnings across the federal banking system remain strong and resilient.
• Operational Risks Rising: Cyber threats, fraud, and aging technology are now among the OCC’s top supervisory concerns.
• Innovation Gap Is a Risk: Banks that fail to invest in new technologies face growing threats to long-term viability.
• AI and Stablecoins Under Scrutiny: AI adoption and digital asset activity present opportunities but demand stronger governance.
• Compliance Expectations Evolving: Fair access, AML flexibility, and payments fraud prevention remain key regulatory priorities.

Deep Dive

U.S. banks are closing out 2025 in strong financial shape, but the risks shaping the federal banking system are becoming less about capital and more about operational resilience. That is what the Office of the Comptroller of the Currency’s Fall 2025 Semiannual Risk Perspective says, which finds banks well positioned to absorb potential stress while warning that cyber threats, fraud, and lagging technology investment are increasingly central to supervisory concerns.

Capital and liquidity levels remain high across the federal banking system, supported by moderate loan growth, lower funding costs, and improving net interest margins as deposit pricing adjusts to a lower-rate environment. Unrealized investment portfolio losses have fallen to roughly half of their 2023 levels, reflecting both interest-rate dynamics and portfolio repositioning.

Bank profitability in the first half of 2025 remained resilient. Net interest income continued to grow, particularly among banks with less than $10 billion in assets, while overall net income for the system held steady despite one-time nonrecurring events.

Credit and Market Risks Remain Contained

Credit performance across commercial and retail portfolios remains manageable, with delinquency and loss rates still below long-term averages. Noncurrent loan rates edged up slightly from last year but remain well controlled overall.

Multifamily commercial real estate showed the most stress, with noncurrent loan rates above historical norms, though the OCC emphasized that the increase was driven by an outlier rather than a systemwide decline. Community banks continue to report strong credit quality, while larger institutions have tightened underwriting standards for commercial and industrial loans amid economic uncertainty and margin pressure. Middle-market borrowers were identified as more vulnerable due to limited financing flexibility.

Market and liquidity risks remain well managed. Deposit levels continued to rise through the first half of 2025, and banks expanded contingent liquidity sources. Smaller banks benefited from stronger net interest margins, while larger banks experienced modest compression as loan yields declined faster than funding costs.

Cybersecurity and Fraud Take Center Stage

Operational risk is where the OCC’s tone becomes more cautionary.

The agency reported a rise in threats from foreign state-sponsored actors and sophisticated cybercriminal groups targeting the financial sector. In particular, regulators highlighted the growing risk posed by North Korean IT workers fraudulently gaining access to U.S. company networks, exposing banks to data theft, sanctions risk, and broader operational disruption.

The OCC also pointed to recent incidents underscoring vulnerabilities tied to aging infrastructure. Legacy systems, the agency warned, can amplify outage risks and create security gaps if not actively managed through effective technology lifecycle planning.

Fraud remains another persistent challenge. Elevated scam activity continues to drive operational losses, prompting federal banking agencies to seek industry input in 2025 on ways to better address payments fraud across checks, wires, ACH, and instant payment systems.

Innovation as Opportunity and Risk

The report delivers a clear warning about the risks of falling behind technologically.

Financial innovation is reshaping how banks deliver products and services, and institutions that fail to invest in modern systems may face material long-term risks to performance and viability. Banks are increasingly using artificial intelligence for credit underwriting, fraud detection, and internal efficiency, with generative AI use cases largely focused on employee support and productivity.

The OCC emphasized that AI deployment must be paired with strong governance and risk management. Digital asset developments also featured prominently, including the July 2025 passage of the Guiding and Establishing National Innovation for U.S. Stablecoins Act, which establishes a federal framework for payment stablecoins. The OCC said it is prepared to implement the law and expects banks engaging in digital asset activity to do so in a safe, sound, and compliant manner.

Compliance and Fair Access in Focus

On the compliance front, the OCC highlighted evolving expectations around fair lending, Community Reinvestment Act oversight, and what it describes as politicized or unlawful debanking.

Following an August 2025 executive order on fair access to financial services, the agency is reviewing consumer complaint data and engaging its largest supervised institutions to ensure banking decisions remain objective, individualized, and risk based.

The broader economic backdrop remains relatively stable, with modest GDP growth, slowing job creation, and expectations for further interest-rate cuts. While most forecasters expect the U.S. economy to avoid a recession, the OCC cautioned that further weakening in employment or consumer finances could pressure credit quality and earnings.

The report portrays a banking system that is financially resilient but increasingly exposed to operational, technological, and security-driven risks. Strong balance sheets provide a buffer, but for the OCC, the future stability will hinge as much on cyber readiness, fraud controls, and innovation discipline as on capital ratios.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.