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Model Risk Framework for Medium-Size and Small Banks

Learn how to fully capitalize on the benefits of models while simultaneously managing significant model risk.

It has been more than nine years since the publication of the Supervisory Guidance on Model Risk Management by the Federal Reserve, known as SR11-7, and its companion guidance from the OCC (OCC 2011). In that time, the largest banks have dramatically improved their model risk management (MRM) programs by increasing the number and skill sets of those involved in model risk management, enhancing policy and procedure, and improving technology to make model risk management more efficient.

Progress has been slower and more difficult at smaller institutions and community banks, even though the use of models at these institutions continues to grow rapidly. This rapid growth is driven by the many opportunities models bring, for example in the form of more efficient and repeatable processes. However, these opportunities carry risk as well, which needs to be effectively managed.