Schlagwort: Margin of conservatism

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IRB 2.0: Current Validation “trends” and commonly observed difficulties in practice during the validation exercise

To shorten the waiting time until our regulatory IRB-Homeschooling starts, we would like to give you some insights into our experiences around validation exercise, we gained with various national and international credit institutions.

Introduction:

As institutions are developing models for an increasing scope of risk management and decision making, concurrently, the number of models has been rising dramatically (i.e. models for capital provisioning and stress testing, pricing, strategic planning as well as asset liquidity purposes). More complex models are being developed with even more advanced analytics techniques (i.e. machine learning) to achieve higher performance. Big data and advanced analytics are opening new opportunities for more sophisticated models.

There are several reasons for this phenomenon; banks have started using more data sources about the retail lending activities, and new regulatory changes such as IFRS9 have introduced the use of new models what has not been in the bank’s agenda some ten years ago.