Last April, the FDIC released an Interagency Statement titled Model Risk Management (MRM) for Bank Models and Systems Supporting BSA/AML Compliance. The statement assured financial institutions that no specific model risk management is required, and that the guidance is intended to provide flexibility in applying risk management principles commensurate with a bank’s risk profile and the complexity and materiality of its models.
While this statement softened the enforcement of regulatory guidance, the FDIC recently issued an update to its Risk Management Manual of Examination that incorporates model risk management into bank ratings. The update includes a new section titled “Model Risk Management,” which details how examiners will evaluate bank management’s performance under the CAMELS rating system to determine if the institution is run safely and soundly.