Capital Stress Testing (DFAST) Validation

Darling Consulting Group (DCG) is a recognized leader and premier provider of independent risk management consulting and regulatory-compliant model validation services to large financial institutions. Our validations align with regulatory model risk management guidance (OCC Bulletin 2011-12, Federal Reserve Board SR 11-7, and FDIC FIL 22-2017).

 DCG provides comprehensive Dodd-Frank Act Stress Testing (DFAST) and general credit stress-testing model validations to financial institutions. As part of this comprehensive service, we provide an independent evaluation of the statistical approaches employed to project credit losses in the Federal Reserve macroeconomic scenarios along with any additional bank-specific scenarios simulated. In addition, we provide confidence that the identified risk algorithms are being appropriately applied and that credit losses are being properly captured and reflected within the stress-testing framework.

Our experience in this validation space gives us a substantive horizontal viewpoint of the relative success of in-house and outsourced statistical methods employed and the variety of approaches to model architecture, systems integration, documentation, reporting, governance, and process controls. It is because of this horizontal perspective that so many larger financial institutions rely on DCG for advice and independent review. The models and sub-modeling processes we cover include:

  • Credit risk rating (scoring) models
  • Bottom-up and top-down credit loss models (loans and investments)
  • Pre-Provision Net Revenue (PPNR) modeling
  • ALLL
  • ALM model integration
  • Aggregator model and reporting
  • Governance and controls (developmental evidence, documentation and more)

DFAST (CCAR) Challenger and Champion Models

With DCG’s in-house credit modeling expertise, we can produce challenger loss models for Chief Risk Officers, Enterprise Risk Officers, internal model risk management (MRM), and internal audit departments to compare with primary (champion) loss models. Challenger loss models assist MRM and internal auditors with evaluating the reasonableness of primary model output and provide an example of loss model technical documentation.

Capital Model Validations

DCG also provides comprehensive capital model validations. We provide an independent evaluation of the mathematical approaches employed to project economic capital, regulatory capital, and capital at risk. DCG is equipped to evaluate any models providing input into a capital model including credit stress-testing models and operational risk models.

Consulting and Education

Not a “DFAST institution” yet or did you just become one? Looking for guidance and insight around risk quantification, data sourcing, model architecture, statistical and analytical approaches, technology requirements, assumptions, governance, documentation, reporting, current regulatory expectations, strategic use, executive and Board roles, and how to establish effective challenge? DCG can help you make sense of it all and quickly learn from others’ mistakes. DCG’s education and consulting can inform executives, Boards of Directors, modelers, model risk management practitioners, and internal auditors covering all aspects of the credit stress-testing process.

Our Experience

DCG’s team of capital stress testing experts have validated more than 40 DFAST and CCAR stress testing models. We are comprised of a select group of highly experienced quantitative risk management model developers and validators, data management and documentation specialists, former examiners and governance experts, and model risk management professionals.

Contact us to learn more or schedule a meeting with DCG’s experts. We are confident our experience with Capital Stress Testing Model Validations will add great value to your model risk management process!