Introduction
When the AWS cloud blinked, thousands of businesses felt the ripple, and many banks were reminded just how dependent they've become on systems they don't control.
For Community Banks, this wasn't just another headline about technology failure. It was a real-time stress test of resilience, a demonstration that even when supervision feels lighter, examiners are still watching closely.
The Office of the Comptroller of the Currency (OCC) may be evolving toward a more collaborative and proportional supervision model. This doesn't mean resilience expectations are easing. Across town, the Federal Reserve Board (FRB) hasn't signaled any comparable change. For FRB-supervised institutions, it remains examination as usual.
A Tale of Two Supervisors
Throughout 2025, the OCC made a subtle yet meaningful shift, focusing on fewer formal enforcement actions, greater emphasis on constructive dialogue, and a renewed focus on proportional oversight for smaller institutions.
Community Banks welcomed the change. It suggested that regulators were listening to the resource constraints these smaller institutions face.
But beneath that softer tone lies a steady message. Operational resilience, continuity, and third-party oversight remain non-negotiable. The OCC’s evolving framework still centers on a bank’s ability to withstand disruption, maintain critical operations, and protect customers.
The FRB, on the other hand, hasn't announced any comparable shift. Its examiner playbook continues to emphasize governance, risk management, vendor oversight, and contingency planning as cornerstones of safety and soundness.
Together, these two dynamics create a dual-lens environment:
• The OCC expects banks to demonstrate self-governance and accountability, even as it reduces procedural burdens.
• The FRB maintains more traditional, full-scope reviews with consistent expectations for documentation, testing, and oversight.
🔍 Key Takeaway: The OCC and FRB may differ in tone, but not in expectations. Both continue to hold Community Banks fully accountable for demonstrating operational resilience, vendor governance, and board oversight.
When the Cloud Blinks
The recent AWS outage was short by technical standards but long in its implications. For several hours, core infrastructure in the US-East-1 region faltered, disrupting applications, data processing, and digital services across industries. Community Banks faced potential exposure through their core providers, digital banking vendors, or third-party fintech integrations.
The U.S. core banking market is dominated by just three firms: FIS, Fiserv, and Jack Henry. Collectively, these providers support 70% or more of all U.S. banks, including a significant share of Community Banks. This makes fourth-party risk an immediate supervisory concern. When AWS goes down, even briefly, the ripple can extend to your bank’s core processing, digital banking, or payments operations.
The AWS event isn't just about cloud resilience. It is a reminder that a bank’s continuity is only as strong as its vendor’s architecture and contract terms.
🔍 Key Takeaway: Even if your bank doesn’t contract directly with AWS, your vendors do, making fourth-party risk and cloud dependency an unavoidable part of every Community Bank’s resilience strategy.
Why Community Banks Are Most Exposed
Community Banks have long relied on outsourced technology to level the playing field. Core providers and fintech partners deliver digital services that small banks cannot feasibly build in-house. That convenience, however, creates dependency.
When a disruption hits a vendor or their cloud provider, Community Banks have fewer buffers and less internal redundancy to absorb the shock.
Unlike large banks, Community Banks often:
• Operate under single-vendor models,
• Lack dedicated resilience or vendor management teams,
• Depend on standard SLAs that cap liability to minimal service credits, and/or,
• Have limited negotiating leverage to demand multi-region redundancy.
This means Community Banks must be ready to prove how they monitor vendor resilience, evaluate continuity plans, and escalate service disruptions even if they don't control the infrastructure.
🔍 Key Takeaway: Outsourcing may reduce cost, but it never transfers risk.
What Examiners Will Expect to See
Whether your next exam falls under the OCC or FRB, they'll arrive with the same core question: “Can this institution continue critical operations despite a vendor or cloud disruption?”
That question drives examiner expectations in four key areas:
1. Board Oversight
Boards are expected to receive regular reporting on vendor dependencies, resilience metrics, and incident response outcomes. For OCC banks, this ties directly to governance accountability. For FRB institutions, it links to safety and soundness assessments.
2. Vendor Risk Management
A bank's vendor inventory must identify all critical third parties and, where possible, their fourth-party relationships. Examiners increasingly expect evidence that banks understand their vendor’s cloud dependencies and geographic regions.
3. Contract Review and SLAs
Examiners will scrutinize vendor contracts not just for compliance but for resilience provisions such as uptime guarantees, outage communications, liability caps, data recovery time objectives, and exit clauses.
4. Continuity Testing
Paper policies are not sufficient. Banks must provide satisfactory evidence of periodic resilience testing, such as tabletop exercises, backup validation, or joint vendor continuity drills.
🔍 Key Takeaway: Whether under the OCC or FRB, examiners will expect concrete proof including documented vendor inventories, tested continuity plans, and clear board reporting that shows control and awareness.
From Risk to Readiness
Operational resilience isn't built overnight, but it can be demonstrated methodically. This is where Community Banks have an opportunity to get ahead.
At iKinetiq, we translate enforcement data and real-world events like the AWS outage into practical readiness frameworks that help banks align to examiner expectations.
To start, we recommend banks:
• Map Your Vendor Chain: Identify critical vendors and determine which cloud providers or data centers they rely on.
• Review SLAs and Liability Terms: Are uptime guarantees enforceable? What’s excluded?
• Document Outage Response Paths: Who communicates what, when, and to whom both internally and externally.
• Test Continuity: Run a vendor-outage tabletop or comparable test at least annually and document lessons learned and any necessary corrective actions taken.
• Report to the Board: Include vendor resilience metrics and incident summaries in quarterly risk updates.
🔍 Key Takeaway: Resilience isn’t about preventing every outage. It is about proving your institution can withstand an outage and has mapped, tested, and governed vendor dependencies.
How iKinetiq Helps Community Banks Prove Resilience
Most Community Banks already perform many of these activities but often struggle to show examiners what’s being done behind the scenes.
At iKinetiq, we help institutions bridge that gap every day by translating vendor oversight, contract reviews, and continuity planning into clear, examiner-ready documentation.
Here’s how we typically support our clients:
• Clarify vendor dependencies and resilience evidence
• Identify gaps early and remediate proactively
• Strengthen board reporting and risk communication in plain language
