Banks Look Stronger, but the OCC’s Watch List Is Growing

The OCC’s spring Semiannual Risk Perspective begins from a position of strength. Bank earnings improved in 2025, supported by loan growth and lower funding costs. Balance sheets remain strong, with capital ratios and liquidity “high by historical standards,” and credit risk across the federal banking system remains manageable in the aggregate. First-quarter 2026 earnings releases, the OCC says, suggest those trends have generally continued. 

But stronger footing has not made the risk picture simpler. The report points to several areas where current performance looks stable, yet future stress could still emerge unevenly. 

CRE refinancing still matters. The OCC does not describe a broad commercial real estate breakdown. In fact, it says headwinds in several property types “have not resulted in significant credit defaults.” But that is not the same as all clear. A substantial volume of CRE loans originated in a lower-rate environment will mature over the next several years and need to be refinanced at prevailing rates. Conditions also remain uneven across segments: retail remains a bright spot, while office, warehouse, and hotel properties still face more pressure. 

Private credit needs closer monitoring. Bank exposures to private credit funds are “generally performing according to the terms agreed with borrowers,” the OCC says. Still, the agency flags signs that credit quality in some vintages, borrower types, and sectors may be weakening. One reason this area deserves extra scrutiny is that restructurings and paid-in-kind mechanisms may mask underlying deterioration in loan portfolios held by private credit funds. Given growth in lending to private credit funds and increased concentrations at some banks, the report says careful monitoring of borrower performance and refinancing risk is becoming more important. 

Consumer stress is showing up at the weaker end. The OCC reports a modest increase in past-due consumer loans, driven by households with lower credit scores. That is worth watching, even if the agency says OCC-supervised banks have manageable exposures to higher-risk borrowers and that retail loan performance in the federal banking system has generally improved over the past year. 

The takeaway: The OCC is not describing a banking system under broad strain. It is describing one that looks sound overall while still requiring close supervision in places where tomorrow’s stress may not be fully visible in today’s results. For banks, that means there may be more room to operate than there was a year ago—but not less reason to stay alert.