Get Your Model Risk House in Order

CECL | Model Validation | MRM | MRM Framework

This week marks one year since life as we knew it was altered so drastically, and we were introduced to new terms like "zoom," "socially distant," and "N95." But another anniversary is upon us, one that comes with a bit less fanfare but has had a profound impact on our lives, even if we don't realize it. Ten years ago, on April 4, 2011, Model Risk Management (MRM) was introduced to the banking world and "effective challenge," "ongoing monitoring," and "rigor" became a part of the lexicon of model owners, risk managers, auditors, and examiners.

ALCO is the lifeblood of your organization, and the decisions that you make there have wide-ranging implications. So it stands to reason that you put as much emphasis on the reliability of your risk models and the quality of the model inputs as you do on the information they provide.

The complexity and number of models you rely on are continuing to increase, their utilization for decision-making purposes is expanding, and your potential exposure for errors from these models has never been higher. Do you fully understand the consequences your institution will face if these models don't perform as intended or are misused? The very guidance for which we are celebrating the tenth anniversary outlines the exposures facing your organization if model risk does not take on a more prominent focus: