The OCC's Eight Categories of Risk


 by Suzanne Storm & Louis J. Dunham

The OCC announced on May 6, 2013 that as part of Dodd-Frank implementation, it is updating theComptroller’s Handbook by periodically issuing new or revised booklets on various topics reflecting changes to laws, regulations, and supervisory policy.  

The first change was to the “Foreword”, which outlines how the Handbook is organized and the booklets laid out, and lists all of the booklets included in the Handbook.

The second change was updated definitions of the categories of risk that banks face and regulators need to be aware of and to assess in their examinations.  

Perhaps the single most important change was to the introductory paragraph, which has shifted from a statement that examiners should identify and assess the risks separately to the importance of being aware of their interdependence and assessing the effects in a “consistent and inclusive manner”.  

Other interesting language changes were that in each case where the old booklet spoke of risks “arising” from a given activity, it now says risk “exists” because of or is a “result” of that activity; and that risks are to “current or anticipated” earnings or capital, where there was no modifier previously.
The primary changes are as follows:
  • Nine risks were reduced to 8; Foreign Exchange risk is now included as an aspect of Price risk
  • Transaction risk was replaced by Operational Risk and expanded significantly
  • Liquidity risk is stated a bit more starkly, including “inability to access funding sources”
  • An updated product set is reflected in several of the risks, such as including OREO and mortgage servicing in Price risk
  • Reputation risk has been expanded and includes a new emphasis on outsourcing as a source of increased reputation risk; potential impact to franchise or enterprise value was added as well
For more information, please call 610-649-4643, or contact Suzanne Storm