Credit Model Validation

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

Effective credit risk management is built upon a foundation of solid models and metrics that calculate the riskiness of borrowers at both the individual and portfolio levels. DCG’s credit model validation provides a comprehensive review of the probability of default (PD) and loss given default (LGD) methodologies at your institution, including assessments of the input data, statistical techniques, model outputs, and risk rating procedures. Model validation also encompasses back-testing and benchmarking analyses to evaluate the effectiveness and stability of your credit models. Our experience will help you ensure that your credit model results are reliable for conducting the many other functions—such as allowance setting and bottom-up stress testing—that depend on the accurate estimation of your borrowers’ credit risk.

Credit Model Validation Services

DCG’s credit model validation services cover the following areas:

  • Probability of default (PD) and risk rating scorecard model validation
  • Loss given default (LGD) and recovery model validation
  • Qualitative and expert judgment-based scorecard validation
  • Performance monitoring program review and design

Our Experience

Our QRAS team has extensive experience with a variety of credit-related models. Our core team members have decades of credit model development experience, with extensive academic backgrounds in statistics and econometrics. Moreover, our team has experienced former bank-side model owners who know how to balance the practical business needs with the technical components of model validation.

The QRAS team has validated hundreds of credit-related models, including experience with standalone credit models, a suite of credit models, and credit models incorporated into larger models like stress testing or allowance setting. We have experience validating credit models for standard loan products (such as C&I or CRE), as well as uncommon loan products (such as student loans or equipment financing).

Contact us to learn more or schedule a meeting with DCG’s experts. We look forward to the opportunity to provide you with our Credit Model Validation services.