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Board Report: 2022-SR-B-016 December 7, 2022

The Board Can Enhance the Effectiveness of Certain Aspects of Its Model Risk Management Processes for the SR/HC-SABR and BETR Models

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The Board uses models to monitor potential risks that financial institutions may face. Because they inform the Board's supervision activities, these models must be sound and produce reasonable and reliable outputs. We assessed the effectiveness of the Board's model risk management processes for the SR/HC-SABR and BETR models, which the Board uses to monitor risks at community and regional banking organizations.

We found that the Board can enhance model risk management by ensuring timely review and validation, developing a comprehensive model inventory, and developing a formal mechanism for tracking the findings and recommendations of internal groups that review and validate models.

Our report contains recommendations.