A New ERA of Elevated MRM and Data Governance
The pronounced economic changes and challenges we have been experiencing over the past year is triggering renewed attention in the industry towards Asset/Liability Management (ALM) modeling and its ability to credibly quantify interest rate risk for ALCO decision making. In addition to the growing use of more sophisticated “feeder” models and studies, institutions are also broadening their ALM modeling-related capabilities in order to perform more integrated stress testing for liquidity and credit, profitability measurement, and even CECL.
Heightened emphasis on model risk management and data governance practices, combined with growing incidents of poor model performance identified by model risk management (MRM) validators and examiners, has triggered an elevated level of review and validation. Key areas of concern include the fundamental source data, use and validity of feeder models or “studies” developed internally or by third-party providers, the sufficiency of ongoing performance-monitoring processes, ALCO’s involvement and oversight with regard to assumption management and decisions, and risk’s overall role at ALCO.