The Office of the Comptroller of the Currency warned that more than half the amount borrowed on equity lines at national banks, or $221 billion out of $380 billion, will face higher payments from 2014 to 2017, exposing banks to the possibility of losses if some equity-line borrowers default, the Wall Street Journal reported today. Darrin Benhart, deputy comptroller for credit and market risk at the OCC, said that "banks are going to have to be thinking about ways that they're going to address" the problem, including debt restructuring. The OCC report, the first in a series of semiannual reports on financial risks in the banking system, also said that banks have shifted to higher-risk investments to boost interest rate returns, a development that could create future losses for banks. The OCC is separately studying which banks could be hit the hardest if interest rates rise. For larger banks the regulator said that it would focus on problems with mortgage servicing as well as underwriting standards for business loans and exposure to European institutions. The agency will also scrutinize smaller banks to look at loss exposure from commercial real estate loans and new types of auto and other lending products.
