Large Bank Examination Workshop February 2026

Code and Mathematics • An essential element of model validation is independent review of the theory that the organization uses. • Management should expect modelers to a) provide clear descriptions, in nontechnical terms, of the theory underlying the models; and b) show that the theory underlying the model has received recognition and support from professional journals or other forums.

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Validation Issues – Model Code • Auditors/examiners are not responsible for evaluating code-level algorithms. • Code level review usually not conducted or required for annual validation process • Vendors usually have third party certifications of model code available – check to see if it is recent (3-4 years) and verify that there have been no major upgrades to the production model since the certification was conducted. • Internally developed models should have code level reviews periodically (but not annually unless major changes made)

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