How do banks manage model risk in 2016?

  • 28 October 2016

 

In 2016 we surveyed 12 of our Member banks on their model risk practices as part of a Snap Survey. From their responses we created a report which summarises how these banks define, manage, and mitigate model risk.

"To further advance model risk management and quantification practices, standardisation of definitions and ownership, and improved methods in the industry are crucial." - a South African bank

Report summary

The Members we surveyed, and their supervisors, all thought that model risk management is crucial. They also believed that it is likely to become a bigger priority over the coming years.

This could be because of the Basel Committee on Banking Supervision's growing discomfort with the adequacy of models, especially those informing capital demand. 

We found that currently firms are at different stages of evolving practice. Model risk is a relatively new focus area for risk management, so it is likely that practices are less mature than in more established risk types. However, we did identify several key areas where practices converged or diverged (listed on the left).

The future for model risk

As the importance and recognition of model risk grows, we would expect that practices at different firms will begin to converge.

We hope that this report will help our Members to improve their model risk managements practices, as well as helping them in discussions with their supervisors.

About Snap Surveys

This report is the first of a new breed of research projects. It started as a ‘Snap Survey’, which are designed to be much quicker and require fewer resources than our usual research projects.

Following the proposal of Model risk as topic for a Snap Survey from one of our Members, we launched the survey and completed this report in less than three months. Find out more about Snap Surveys, and our other surveys and benchmarking projects.

Download the report

How do banks manage model risk in 2016?

Download the public summary of the Snap Survey report.

Find out more

You can find out more about this report by getting contacting us.

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