In the heart of software development, in the city Brno, we launched a blog about IT.
Models used by financial institutions (FIs) are not defined only by their source code, datasets, and documentation, but also by the entire model lifecycle, which can typically be broken down into a set of workflows. Therefore, FIs often acquire workflow management systems, typically standalone, or the processes are "defined and maintained" in good old Excel sheets. While this might have seemed like a sufficient solution, there are much more advanced approaches, with an incomparably higher value for the business.
Model governance regulators are moving their focus closer and closer to the qualitative elements of a model – the model governance process. Unfortunately, the regulator also often asks the bank to explain their internal risk mitigation process without the providing the specific guidelines necessary to match the model to the bank’s methodology.
Model inventories start to become more complex when one starts contemplating and later implementing them. They very often become an elementary component for all later model governance/model risk management related efforts. Having a solid foundation is key to smooth sailing in the future.
I would like to discuss a problem with you that I see repeatedly encountered when performing complex, multifarious tasks such as bank stress tests: the lack of ability to concentrate on the "bigger picture" and the consequences this has on the analyst.