Operational risk has eclipsed credit risk as national banks’ chief safety and soundness challenge, Comptroller of the Currency Thomas Curry told the Exchequer Club in Washington, D.C., yesterday.
Operational risk -- the risk of loss due to failures of people, processes, systems and external events -- is “high and increasing,” Curry said. He cited flawed risk models, lack of adequate controls over third-party vendors, and anti-money laundering efficiencies as some examples of operational risk.
“[A]s banks and thrifts face greater resource constraints and higher compliance costs, they may feel greater pressure to economize on systems and processes in order to enhance their income and operating economies … ,” Curry said. “All institutions … must resist the temptation to underinvest in the systems and controls they need to prevent greater risk and larger losses in the future.”
He emphasized that the risk of operational failure is embedded in every activity and product -- from a bank’s processing, accounting and information systems to the implementation of its credit risk management procedures.
“No issues loom larger today than operational risk in all its dimensions, the manner in which all risks interact, and the importance of managing those risks in an integrated fashion across the entire enterprise,” Curry said. “These themes are a supervisory priority for us at the OCC today and they should similarly command the attention of the industry.”
Read Curry’s speech.