BAS Case Study - March 2023

A PPENDIX H – M ODEL VALIDATION PROCESS

Independent Review Validates the overall interest rate risk measurement and management process,

including data inputs and the reasonableness of assumptions

Back-Testing Validates the results and provides insight about the accuracy of model assumptions; accomplished by comparing results from the scenario closest to what rates have done to actual bank performance

Model Validation Letter Validates the mechanics and mathematics of the program; often provided by the vendor

Note: An independent review and back-testing should be completed at least annually. A time frame is not specified for the frequency of obtaining model validation letters.

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