Large Bank Examination Workshop February 2026

Key Components of a MRM Policy

6. Risk mitigation:

• Risk assessment: Establishes a process for identifying and assessing the magnitude of risk for each model, considering its complexity, usage, and potential impact. • Corrective actions: Outlines procedures for taking corrective action when a model is found to be incorrect or misused.

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Common Modeling Issues • Model is unsuitable for institution’s risk profile  Cannot adequately capture risks • Key assumptions are incorrect or not well documented  Not available for review (internal or external) • Model inputs and assumptions are not updated regularly  Fail to demonstrate they are reasonable • Absence of formal procedures for the model  Inputs, user guides, training materials, reporting, contingencies • Absence of back-testing model to actual results  Determine root cause and make adjustments

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