Due diligence on new products, services is inadequate at some banks, OCC warns.

Adding new products and services without sufficient due diligence has recently caused dozens of banks, both large and small, to suffer financial problems, the Office of the Comptroller of the Currency warned this spring.

The OCC specifically focused on new products offered through third-party vendors or products that were new versions of traditional products. "Some historically well-managed banks have found themselves faced with problems because bank management underestimated its need to manage, monitor and control the development of a product or service," the OCC reported in a bulletin to banks.

The problem was not with any particular product or service, the OCC said, but rather with the failure of banks to perform adequate due diligence for the product and the vendor and failure to develop control and performance-monitoring systems.

In recent years, a number of banks have turned to new products and services as a source of new revenue as growth slowed with conventional business lines. "The OCC expects bank management and the board to oversee all new, expanded or modified products and services through an effective risk management process," the bulletin said.