In its Semiannual Risk Perspective for Spring 2019, the OCC described the condition of banks as “strong” as far as capital, leverage and short-term performance. The regulators highlighted a number of significant big-picture risks, particularly as to AML compliance and operations and FinTech:
AML. AML-related deficiencies “stem from three primary causes: inadequate customer due diligence and enhanced due diligence, insufficient customer risk identification, and ineffective processes related to suspicious activity monitoring and reporting, including the timeliness and accuracy of Suspicious Activity Report filings. Talent acquisition and staff retention to manage  compliance programs and associated operations present ongoing challenges, particularly at smaller regional and community banks.”
FinTech. “Rapid developments in FinTech and ‘big tech’ firms, evolving customer preferences, and the popularity of mobile technology applications have significantly changed the way banks operate and consumers conduct their banking and financial activity. . . . [T]he pace of change and the transformative nature of technology may result in a more complex operating environment. . . . Changing business models or offering new products and services can, however, elevate strategic risk when pursued without appropriate corporate governance and risk management. New products, services, or technologies can result in greater reliance on third parties by some banks and a concentration of service providers by the industry as a whole.”
A key takeaway from the OCC’s regulatory comments is that the regulators expect that there is likely to be a material reduction in the number of smaller banks. They are squeezed on the expense end from compliance costs and new technology costs, and squeezed on the revenue end from competition with FinTech firms and customers’ disinterest in traditional banking relationships.