Turn failing model risk management into a best-in-class process
Banks create scenarios—models—to understand their risks when making investments, or issuing credit. But sometimes the models themselves are wrong: As well, sometimes, they no longer perform the way they should and don't flag risks.
That happened to one of the top retail banks in the U.S.—and it failed the Federal Reserve's annual CCAR exam as a result. The Fed uses the CCAR exam to determine if banks have enough capital to withstand economic stress, and to assess whether their plans for dealing with risk are strong enough.
Clearly, this bank had to have a better risk management solution, so it turned to us to craft one. We found the following evident problems right away:
- No single central repository of models
- No realistic schedule of upcoming validation events
- No consistent standards, templates, or processes to meet regulatory requirements in a timely and efficient manner
No question—independent validation of its credit, capital, and market risk models was critical.