WHY DO WE NEED IT?
Bank’s reliance on analytics and models in decision making leads to an increase in model risk. Unaccounted model risk leads wrong decisions resulting in, financial loss, apart from compliance and reputational risks.
Regulatory bodies like BCBS, OCC, the Federal Reserve, PRA have increased their focus on Model Risk emphasizing good governance, periodic validation and ongoing monitoring as mitigants for model risk.
According to Board of Governors of the Federal Reserve System and Office of the Comptroller of the Currency in the SR Letter 11-7:
"The expanding use of models in all aspects of banking reflects the extent to which models can improve business decisions, but models also come with costs…There are also the potential indirect costs of relying on models, such as the possible adverse consequences (including financial loss) of decisions based on models that are incorrect or misused. Those consequences should be addressed by active management of model risk."
HOW DOES MONITRO WORK?
START WITH DATA INTEGRATION
Banks and financial institutions use analytics and models in all parts of their organization. These models use data from multiple sources. Monitro is an ideal solution to integrate diverse sources of data to measure model performance.
- Integrates with source systems avoiding manual interference thus ensuring integrity of the entire process
- Stores historical results in the system which can be easily extracted to understand model data and performance
- Extracts raw data from the bank’s database and massaging the data related to a model
- Provide a single source for model related documents like "Model Document", "Data Document", "Terms of Reference", validation reports and monitoring results etc.
MEASURE MODEL RISK holistically
Analysts can start measuring model risk with the help of a rich library of statistical and mathematical metrics. A holistic view of models, the modeling process and model governance practices is also key aspects of validation. These various measures serve as building blocks of a comprehensive model validation framework.
- Covers every phase of Model Lifecycle, starting at model initiation and ending with decommissioning of the model
- Manage analytical model inventory through a centralized and secured web based platform
- Automates routine model validation tests, providing more time for the users to analyze and evaluate model performance
- Ensures strong model governance by providing linkage to various policies and controls over the model risk management framework
- Locks down the validated models in model repository which can only be accessed by approved users
GENERATE MULTIPLE VIEWS OF MODEL PERFORMANCE
Monitro brings interactive and seamless visualization in the form of Tables, Charts and Graphs to provide a holistic view of model performance. There are real-time updates, so users always see the most accurate and current information at any given time.
- Generates automated comprehensive model diagnostic report, addressing quantitative & qualitative issues of the model
- Complies with BCBS working paper No. 14, Pillar II/ICAAP, OCC SR 11-7 guidelines on Model Risk management
- Helps business users to take decisions on model’s further usage, modifications or redevelopment based on the existing model rating process
- Leads to clear version control