New Supervisory Guidance on Model Risk Management

It has been over ten years since federal regulators issued the first guidance to the banking industry on managing model risk through independent validation. In those intervening years, both new thinking has emerged in both the industry and the regulatory agencies around model risk management, and the regulators have observed wide variations in how banks have been interpreting and implementing their original guidance. On April 4, 2011, the Office of the Comptroller of the Currency and the Federal Reserve jointly released new supervisory guidance on model risk management that, for many in the industry, will represent a significantly higher set of expectations to meet.