What the OCC just did might sound harmless on the surface, cutting red tape for small banks so they can focus on lending but it’s actually a subtle signal that regulators are preparing for trouble under the hood. By scrapping fixed examination schedules, easing model risk rules, and dropping certain reporting requirements, the OCC is giving itself more flexibility to quietly manage stress in the system. When rules become risk based and less prescriptive, it means supervisors can choose when and how to intervene, which lets them smooth over losses, delay write downs, and prevent a panic. In plain terms they are simply buying time.
There’s definitely historical precedent for this kind of move. In 2008, regulators quietly loosened mark to market accounting rules so banks didn’t have to recognize collapsing asset values all at once, a maneuver that stopped the bleeding but also hid the depth of the problem. During the savings and loan crisis of the late 1980s, the same thing happened: exam standards were relaxed to give smaller thrifts a chance to earn their way out of insolvency. Even in the early 2020 pandemic shock, capital and liquidity requirements were temporarily softened to avoid cascading failures. Each time, the playbook is the same, when regulators see systemic cracks forming, they loosen the rules to slow the collapse and give themselves room to maneuver.
So while this OCC announcement sounds routine, it’s really a defensive move in advance. Community banks are sitting on unrealized losses from commercial real estate and loan books built for a low rate world. This is a quiet triage move before the patient flatlines.
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