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The top 14 challenges for today’s model risk managers: Has the time come to think about going beyond SR11-7?

Author

Listed:
  • Hill, Jon R.

    (Head of the New York Chapter, Model Risk Managers International Association, USA)

Abstract
Model risk management (MRM) is, in the broadest sense, a governance framework that has an impact on every phase of the model life cycle, including model validation. MRM is a relatively immature discipline compared to validation, a practice most banks, and more recently insurance companies, have had in place for 10 to 15 years. Because it is a recently evolved discipline, model risk managers are confronted with a set of challenges that traditional model validation has not had to contend with. Addressing these expanded challenges in model risk management requires creativity, resourcefulness and support from a firm’s senior management, as well as additional staffing with a variety of specialised skills, both quantitative and qualitative. This paper attempts to identify and discuss industry standard solutions and potential alternative approaches to the 14 greatest challenges that model risk managers face today and in doing so raises the question: Has the time come to think seriously about going beyond the recommendations of SR11-7/OCC2011-12, the Federal Reserve Bank (FRB)/Office of the Comptroller of the Currency (OCC) joint landmark guidance that set the standard for model risk management at US financial firms in 2011?

Suggested Citation

  • Hill, Jon R., 2019. "The top 14 challenges for today’s model risk managers: Has the time come to think about going beyond SR11-7?," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 12(2), pages 145-167, March.
    • Handle: RePEc:aza:rmfi00:y:2019:v:12:i:2:p:145-167
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    Citations

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    Cited by:

    1. Cosma, Simona & Rimo, Giuseppe & Torluccio, Giuseppe, 2023. "Knowledge mapping of model risk in banking," International Review of Financial Analysis, Elsevier, vol. 89(C).

    More about this item

    Keywords

    model risk management; model governance; model validation; model identification; risk-tiering; aggregate model risk; model risk appetite; model inventory; model usage; SR11-7; OCC2011-12; SR15-18; CCAR; CECL; FRTB; challenger models; model interdependency; machine learning; big data;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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