Summary

The use by banks of credit risk rating and scoring models for underwriting, managing, and pricing has grown tremendously in the last several years. Under the proposed Basel II capital reforms, these models will only grow in significance, as they play a major role in the advanced internal ratings-based (AIRB) approach to regulatory capital.

Accompanying the growth in credit risk model use has been a potential for an increase in "model risk," the risk for damage to profitability or reputation arising from the reliance upon erroneous model results or the overly broad application of a model to areas beyond its intended design. Fortunately, model risk can be considerably reduced through the design and implementation of a comprehensive validation plan.

In this workshop, senior OCC model risk experts delineated principles and policies that guide effective validation procedures. The sessions gave examples of the developmental evidence, benchmarking and outcomes-based analyses that characterize validation in both retail and wholesale credit risk modeling.

The complete program guide from the workshop is available for download here.

A detailed overview of the program is available for download here.

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Detailed Program

An Important Note: The workshop organizers have worked hard to put together a set of presentations that describe sound model-risk control processes in the context of credit rating, scoring, and portfolio credit-risk measurement and management. Nevertheless, the fact that a particular procedure is described during a presentation does not necessarily imply that the OCC requires or expects banks to implement the procedure; nor does it imply that a particular set of procedures will necessarily ensure a sound validation process. Statements made by presenters are their own, and do not necessarily represent the views of the Office of the Comptroller of the Currency or the U.S. Department of the Treasury.

Document Library

OCC Bulletin 2000-16: Model Validation   PDF

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