Risk models have been around for a long time, often including some kind of process to manage their lifecycles. Partly in response to
the credit crisis of 2008, the discipline of Model Governance is becoming more regulated and formalized. In addition to
requesting model results, regulatory authorities are now interested in core understanding of the models themselves, their validation
processes and underlying data quality.
Case in point is today's ECB TRIM
initiative. Its largest, single supervision operation to date.
As a consequence, and reflected by TRIM objectives, increased scrutiny is expected in the areas of Model Governance and Model Risk Management. Model inventories, auditable methodology/data validation processes and detailed guidelines must be in place, as a matter of course. In addition, institutions must adequately respond to a host of additional requests:
- Can you fully reproduce historical model runs used for reported capital requirements?
- Is the underlying data still available, can I audit their data integrity tests?
- Where are overrides used? Which ones, and why?
- Can I audit model evolution over time?
- What is the root-cause of variations in results: data or model code?
- Who is using which versions of the models, how often and for what purposes?
We can help. MonkeyProof modelSafe adds critical Model Governance capabilities to your environment, by hosting your model portfolio.
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The ECB launched TRIM to identify the causes of variations in calculated capital requirements among banks, stemming from internal models. The objective is to reduce this variability and to restore confidence in internal models. Expect the TRIM impact-phase to involve stricter Model Governance and Model Risk Management awareness. Are you prepared?