Large Bank Examination Workshop February 2026

Validation Issues - Backtesting • Backtesting will always indicate variances between model results and actual historical outcomes. • Institution must decide what variances are acceptable for key outputs and measures

 Values and prices  Earnings volatility

 Capital levels  Growth rates

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Elements of Sound Validation Policy

Model Documentation • An inventory of models and their applications should be maintained. Policy should also require documentation for specific models that is adequate to facilitate independent review, training of new staff, and clear thinking by the model developer. • The most rigorous policies require documentation that is sufficiently detailed to allow the precise replication of the model being described.

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