US model risk rules put lions back in their cages

Impact of Federal Reserve and OCC model risk guidance is being felt well beyond US banks

Lion tamer

Recent years have seen a quiet but significant shift in the way many major banks address model risk. Previously, many bank models were not subject to a rigorous, centralised model risk framework. A handful of model validators would validate and approve models, sometimes without questioning what they were actually being used for.

In practice, this gave a lot of freedom to users of models – and in particular, traders – to dictate those models' parameters and how they were used. Now, this freedom

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