Model Risk Management
Custom, holistic model risk management services – meeting institutions’ needs now, for tomorrow
Model Risk Management
Financial institutions have long used models in their everyday activities to measure and manage risk – asset-liability management (ALM), Bank Secrecy Act/Anti-money laundering (BSA/AML), budgeting, capital adequacy, current expected credit losses (CECL), liquidity, and more. As the list and complexity of models, data assumptions and regulatory requirements continue to grow, so does the need for a flexible model risk management strategy that centralizes your data for consistent enterprise-wide reporting you can trust.
Data is one of a financial institution’s most valuable resources. Baker Tilly’s experienced team of professionals helps clients at every stage of model risk management and regulatory compliance. From framework development and model governance to model validation and model tuning, we prepare your data to be transformed into valuable insights that guide your most important business decisions.
Baker Tilly’s full range of model risk management services are customized to fit the needs of any institution.
Baker Tilly helps clients achieve the benefits made possible with an integrated model risk management solution, including centralized reporting, enabling organization leaders to determine impacts of changing assumptions across all models at once, streamlining processes and resources, and — one of our personal favorites — eliminating single-use spreadsheets.
We start the model risk management process by understanding our client’s data sources and aggregation processes across all current models and how the data is being used across all platforms. This initial exercise allows us to help you utilize your institution's data beyond simply checking the regulatory box.
Framework development
Baker Tilly’s model risk management solutions are customizable and scalable to fit your institution’s changing needs and evolving regulatory requirements. Our framework development solution includes:
- Data flow mapping
- Establishing goals for modeling and data utilization
- Establishing an ongoing monitoring plan
- Identifying information gaps
- Model testing – full replication and parallel runs
- Streamlining processes and resources
Governance, policies and controls
Our data scientists and model risk specialists work with your internal departments, executive leadership and board of directors to help ensure your model risk management solution is set up correctly, documented adequately and equipped to be maintained. We help clients with:
- Evaluating existing policies and procedures
- Model documentation — including (but not limited to) portfolio segmentation, model design, assumptions and limitations, alternative approaches, data sourcing and preparation, and outcome analysis
- Model operational procedures
- Ongoing monitoring plan
Forecasting
Having a forecast component is necessary for many complex models. We help ensure your forecasts are supportable and reasonable for your operations and footprint through:
- Scenario analysis
- Stress testing
- Economic indicators
- Capital adequacy testing
- Data aggregation
Model validation
Baker Tilly can independently replicate your model from start to finish. Full replication provides you confidence that the model is estimating cash flows accurately and reasonably. Whether you need a complete model replication or help addressing specific programs or issues, our range of model validation solutions include:
- ALM model validation — Baker Tilly’s total asset liability management (ALM) solution includes model validation, scenario modeling, financial projections and stress testing to measure interest rate risk. Our model validation approach provide clients confidence in the data and results from which critical business decisions are based.
- BSA/AML model validations — We complete our model validation engagement to conform to the guidance Interagency Statement on Model Risk Management for Bank Systems Supporting Bank Secrecy Act/Anti-Money Laundering Compliance.
- CECL model validation — Our comprehensive CECL model validation challenges the model’s data, design, assumptions and estimates, assesses if proper governance has been established, and back-tests your assumptions to actual performance.
- Internal audit & regulatory compliance — More than 320 internal audit clients have benefited from the assistance of our experienced internal audit professionals in proactively addressing strategic, operational, financial and general business risks.
Ongoing testing, monitoring
With frequent changes in business activities and operations, and market conditions, it’s essential to adjust your modeling accordingly for it to continue working for you effectively. Our ongoing model testing and monitoring solution includes:
- Addressing changes in risk
- Addressing model limitations
- Corrective actions in case of breaches
- Evaluating new data and/or modeling approaches
- Procedure verification and benchmarking
- Testing of model performance and efficacy
According to the Federal Reserve and Office of the Comptroller of the Currency joint Supervisory Guidance on Model Risk Management (SR 11-7), “Rigorous model validation plays a critical role in model risk management; however, sound development, implementation, and use of models are also vital elements.”
Learn more about model risk management.
Latest insights
Model risk management: Implementing CECL outside of the box
Listen to this webinar for an engaging discussion on the navigation of CECL implementation, how to view model risk management holistically and best practices for your current processes.
Model risk management implementation
This article discusses CECL compliance and how to implement a model risk management solution.
Bank Director: Taking model risk management to the next level – better business decisions from data consistency across models
This Baker Tilly article discusses how data consistency across models allows executives to go beyond box-checking compliance exercise and make better business decisions.
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