Look closer at model risk management since SR11-7 and understand the main themes shaping the MRM space.
Model risk is still nascent within typical banking risk inventories. While originally viewed as a subdomain of operational risk, it has evolved and is increasingly considered as a risk category on its own. Similarly, model risk management (MRM) has evolved as a clearly defined discipline over the last decade, fueled by spikes of regulatory intervention in the aftermath of the 2008–09 financial crisis.
The publication of supervisory guidance on MRM during 2011 by the Federal Reserve Board within the eponymous supervisory letter SR11-7 is widely considered as the key event that launched and shaped MRM practice globally. It has influenced not only industry practice but also the measures adopted by other regulators and supervisors outside the US, triggering a wave of MRM activity spreading from the US epicenter through Europe and more recently to banks in Asia.
In this publication, we take a closer look at MRM eight years after SR11-7, reflecting on how practice has evolved and the trends taking MRM into the future.