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OCC Issues Guidance for Banks Using Quantitative Models

Posted on 4/5/2011

The Office of the Comptroller of the Currency yesterday issued guidance for banks that use quantitative models in any aspect of their business. The guidance addresses "model risk," which is the potential for damage when models play a material role in bank decision-making.

The new guidance, developed jointly with the Federal Reserve, describes important risk management practices related to model use, including effectively challenging models through model validation, strong governance, internal audit coverage and clear internal policies and documentation.

Although many banks already follow some of those practices, the OCC said it expects all national banks to consider the new guidance and modify their model risk management frameworks as needed. The agency added that it has a staff of PhD-level economists, mathematicians and financial experts who will work with OCC examiners as they apply the guidance. Read more. Read the guidance.

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