By Lisa Lambert
WASHINGTON (Reuters) - Wells Fargo's phony account scandal has spurred a top U.S. bank regulator to count sales practices as a chief risk to the country's banking system and to embark on a wide-sweeping review of large and mid-sized institutions.
In a half-yearly report on threats to banks, the Office of the Comptroller of the Currency on Thursday said it now counts "governance over sales practices as a key risk issue."
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The office, along with other regulators, has been looking at bank sales practices since it penalized Wells Fargo <WFC.N> in September for $185 million for years of allegedly opening ghost credit-card and bank accounts in customers' names or convincing customers to add unnecessary accounts.
This is the first time the OCC has deemed sales practices a key threat, putting them on the same level as hacking, low reserves, and a gathering storm of credit risk from significant growth in loans and deteriorating lending standards.
On a call with reporters, Comptroller Thomas Curry said the review continues, but declined to provide details and said he could not give a public assessment on individual banks or the sector as a whole.
The office is currently looking at how the banks it has selected for review - large and midsized banks - handle their sales practices and then will expand its work in the near future based on the findings, he said.
While he would not give a timeline for the review, Curry said OCC staff have an "internal goalpost."
The OCC said it expects to continue to see mergers and acquisitions among banks, which could pose risks to banks' ability to manage information systems and platforms and controls.
It said that banks should "consider the strategic implications of a lower interest rate environment for a longer time period,"
"A persistent low and flat interest rate environment continues to pressure some banks and asset managers to reach for yield by extending asset duration, taking additional credit risk, and looking for new revenue channels," it said.
OCC examiners, meanwhile, have found that banks are weak in preparing for losses on loans and leases, and are not giving enough consideration to strong loan growth, concentrations of credit, increasing risk appetite and lower underwriting standards.
(Editing by Linda Stern and Bernadette Baum)