Large Bank Supervision Forum 2023

What is a “Model”?

• Management is responsible for defining what is a “model”. • SR 11-7 defines a “model” as: “… a quantitative method, system, or approach that applies statistical, economic, financial, or mathematical theories, techniques, and assumptions to process input data into quantitative estimates. A model consists of three components: an information input component, which delivers assumptions and data to the model; a processing component, which transforms inputs into estimates; and a reporting component, which translates the estimates into useful business information.” • A “model” should be clearly defined in the Model Risk Management Policy • This policy should be reviewed and approved by the Board or a designated Board-level committee.

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Common Models

• Credit Scorecards • Appraisal Valuation Models (AVM) • Liquidity Stress Testing – Contingency Funding Plans • Asset Loss Estimations – Capital Stress Testing • Pre-Provision Net Revenue Models • Interest Rate Risk • Allowance for Loan and Lease Losses (ALLL) • Discounted Cash Flow Worksheets

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