WASHINGTON–The FDIC has issued a new report on the top risks facing banks in 2022, and it will look familiar to credit unions.
In the new 2022 Risk Review, the FDIC identified risks related to cybersecurity and illicit financial activity as the most prominent threats in front of the banking industry.
“The number of ransomware attacks in the banking industry increased in 2021, and banks continued to discover vulnerabilities to their software and computer networks,” according to the report. “The number and sophistication of cyber-attacks also increased with remote work and greater use of digital banking tools. Moreover, threats from illicit activities continue to pose risk management challenges to banks.”
The report suggests geopolitical events, including the war in Ukraine and Russian state-sponsored cyberattacks, are raising the risks.
According to the FDIC, its Risk Review is designed to provide a retrospective summary of conditions in the U.S. economy, financial markets, and banking sector, and presents key credit and market risks to banks as of year-end 2021.
Additional Risks
Other risks highlighted in the report include:
- “Zero-day vulnerabilities” in software. These are errors and vulnerabilities in computer-software for which there is not yet an available patch that the FDIC said continue to be discovered and present significant risk until they are resolved; malicious cyber threat actors
- Agricultural credit. Specifically, rising production costs and supply chain problems that affect the agriculture sector may pose challenges to the banking sector in 2022.
- Consumer debt. The report says that despite general improvements in 2021, consumer loans remain “sensitive to pandemic developments and could be a source of risk for the banking industry.”
- Housing credit. Although housing market conditions were favorable in 2021 as was supported mortgage asset quality, the FDIC said “headwinds including increased mortgage rates from near-record lows may challenge the sector’s momentum.”
- Leveraged lending, corporate debt. According to the federal regulator, banks remain vulnerable to potential distress in the corporate debt markets, particularly if interest rates rise and challenge the financial conditions of highly leveraged corporations. While community banks generally have limited direct exposure to the corporate debt market, the banking industry remains vulnerable to adverse corporate debt market developments.
- Interest rate risk and net interest margins. While higher interest rates could benefit banking industry interest income, they could be a source of risk for banks with substantial exposure to longer-term assets, the agency asserted, the FDIC said.