Feb
11
2014

[Webinar] Meeting the model risk governance expectations of regulators

Capitol Building and American FlagFinancial institutions of all sizes increasingly rely on quantitative analytics and modeling for a wide array of financial decision making, including, but not limited to, the underwriting of loans; measuring risk, including enterprise-wide risk measurement; and determining capital and reserve adequacy.

>>  Webinar: Expert Insights: Regulatory Update and Best Practices for Complying with the Latest Model Risk Governance Requirements

Following the financial crisis in 2008, regulators wanted to address the inherent weaknesses that they recognized in the use of models for risk management. As a result of the lessons that were learned during the recent recession as well as through the supervisory experience and industry-best practices of the past decade, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve jointly issued the Supervisory Guidance on Model Risk Management in April 2011. Instead of focusing solely on model validation, the 2011 guidance encourages financial institutions to implement a comprehensive model risk management program that includes:

  • Sound model development, implementation and use that is consistent with the Supervisory Guidance document
  • Robust, independent model validation processes that feature ongoing reviews
  • Governance and control framework that includes defined roles and responsibilities for clear communication of the model’s limitations and assumptions as well as the authority to restrict the model’s usage by the institution

Through their public statements and enforcement actions, regulators have signaled that they see the 2011 guidance as being at the heart of any institution’s policies to manage operational risk responsibly. In addition, regulators see their examination and enforcement in this area as critical to pushing financial institutions to put a greater focus on operational and enterprise risk as part of their regulatory mission to ensure the safety and soundness of our nation’s financial system.

Therefore, the OCC and other prudential regulators will be making a top priority of the examination of a regulated entity’s model risk management policies. Banks and thrifts under the OCC and Federal Reserve’s oversight need to ensure compliance with this guidance.

>> Webinar: Expert Insights: Regulatory Update and Best Practices for Complying with the Latest Model Risk Governance Requirements

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