Model risk management – Special report 2019
A spectre is haunting Europe – the spectre of model risk. Launched in 2016, the European Central Bank’s (ECB’s) Targeted Review of Internal Models (Trim) has forced a step-change in attitudes among European lenders towards ensuring their capital models are fit for purpose. In keeping with other regulators worldwide, the watchdog’s team of inspectors is visiting banks to check everything from internal governance processes to the data inputs that underpin modelling assumptions.
If the early evidence from the review is anything to go by, banks still have significant work to do to get their houses in order. The latest set of findings, on the safety and soundness of banks’ market risk models, landed in April – and made for grim reading. Of 30 banks that had been subjected to supervisory visits, the ECB found, on average, 32 issues with modelling practices – with, on average, nine issues deemed severe.
The review is already proving costly to lenders – and not just from a compliance point of view: ABN Amro cited changes made to its modelling practices as driving a €1.3 billion jump in credit risk-weighted assets during the first quarter of this year – implying the regulator thought its models were not adequately gauging the credit risk in its loan portfolios previously, necessitating a top-up.
Download the full 2019 Model risk management special report in PDF format
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
Machine learning governance
The ability of machine learning models to read great quantities of unstructured data, spot patterns and translate it into actionable information is driving a significant uptake in the technology. David Asermely, SAS MRM global lead, highlights the need…
Not random, and not a forest: black-box ML turns white
Bayesian analysis can replace forest with a single, powerful tree, writes UBS’s Giuseppe Nuti
Converging on sound model risk management practices
Although most banks are progressing rapidly towards a certain standard in MRM practices, the rate of progress is uneven and so are the ambition levels. Management Solutions provides a summarised overview of the state of MRM evolution and how banks are…
Models need longer datasets to handle economic cycles – research
Decades, not years, of credit losses required for accurate risk modelling, argues expert
Model risk management transformation
Financial institutions have been maturing their approaches to MRM and – as models become more complex and pervasive, and regulatory expectations continue to increase – leading financial institutions seek faster and further movement. Ashutosh Nawani, head…
Valuation model risk on the rise at EU banks
Over two-thirds of fair value assets priced using banks' models
Pooled resources offer way to keep credit models afloat
Supervisors drive banks to seek more corporate default data and cost-effective model improvements
Finally, a professional group for model-risk managers
As models of all stripes crowd into finance, the people who screen them form an association
The disputed terrain of model risk scoring
There is no concord on how banks should police their model risk. But two Fed economists have an idea