This year is a very challenging one for banks, who are running in parallel and in very strict timelines, the EBA Stress Test (ST) Exercise and the SREP.
Even if approved by supervisors, SCR models present deficiencies in terms of over-conservatism and instability, this shaken the confidence of SCR model users at stake. The interpretation of SCR ratio evolution by senior management and external stakeholders (rating agencies, investor) can be challenging if the evolution is polluted by “undue model volatility”. Model-based decisions can be harmed by over-conservative assumptions as portfolio risk ranking might be spoiled.
Marie-Paule and Cédric will highlight the key sources of SCR model deficiencies, whether inside the model (e.g. data quality, calibration, aggregation method) or outside it (e.g. model change management, use adjustments). The presenters will also share their views on how a comprehensive model risk approach can support the identification and management of model deficiencies; and can allow for a pro-active management of capital buffer.
Published on: June 2016
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