Case Study: How a Large Financial Institution Allayed Regulator Concerns by Digitizing its Model Performance Tracking
The Situation
One of the largest financial institutions in the world, operating in a highly competitive and regulated environment, found itself under increasing scrutiny over the fragmented state of its model performance tracking regime.
Failing to meet both internal standards and external regulatory expectations, the the institution’s model performance tracking relied on a loan-level analytical framework that overloaded its legacy systems and hindered its ability to react to changing market dynamics. These inadequacies led to significant challenges beyond regulatory scrutiny, including inefficiencies in risk management processes and higher overhead costs. The outlook for rectifying these shortcomings was murky.
The Challenge
The institution’s challenges were twofold.
First, regulatory pressure was mounting, with potential repercussions including fines and restrictions on business activities. Regulators demanded transparent, accurate, and timely reporting of model performance, which the institution’s existing system could not provide.
Second, the operational issues stemming from lackluster model performance tracking were beginning to affect the institution’s ability to capitalize on opportunities. These impacts included inaccurate risk assessments, suboptimal asset allocation, and impaired decision-making capabilities, all of which eroded the institution’s competitive edge.
The Solution
The institution sought RiskSpan’s expertise to deliver a sustainable and effective MPT framework. The trust the institution placed in RiskSpan was grounded in RiskSpan’s history of helping other financial institutions navigate similar MPT shortcomings.
RiskSpan conducted an in-depth gap analysis, developed a customized solution, and provided training and support. Designed to enhance the accuracy, efficiency, and transparency of model performance tracking, the solution incorporated advanced analytics, a holistic governance approach, and robust data management practices. Key components included:
Model Inventory Management: Creating a centralized repository for all models, including inputs, assumptions, and ownership to streamline tracking and compliance.
Model Performance Dashboard: Implementing a real-time monitoring dashboard that provides insights into each model’s performance, deviations from expected outcomes, and potential areas of concern.
Regulatory Compliance: Automating the generation of reports to ensure compliance with regulatory standards, reducing manual errors, and freeing up resources for other critical functions.
Training and Support: Providing comprehensive training to the institution’s staff to ensure they can effectively utilize the new system and offering ongoing support to address any issues promptly.
The partnership led to transformative outcomes, including improved risk management, reduced manual errors, and operational costs.
What this means for you (and your bank)
Precise model performance tracking can enhance risk management, regulatory compliance, and operational efficiency. Our expertise ensures that our clients are equipped with robust, cutting-edge solutions tailored to their specific needs. If you are encountering challenges, we encourage you to reach out to us for a consultation.