Banks say lower-risk models face excessive reviews

Key facts

• Banks are reportedly using valuable resources to validate models that have limited importance.
• There are concerns about the capacity of bank teams to meet both internal and regulatory demands.
• Regulatory divergence is emerging as a factor in the model risk management workload.

Financial institutions are expressing frustration over the disproportionate amount of resources dedicated to validating models deemed to be of low importance. This practice is stretching validation teams thin and raising concerns about their ability to cope with both internal requirements and evolving regulatory expectations. The situation is further complicated by a growing divergence in regulatory approaches across different jurisdictions, adding another layer of complexity to model risk management. This issue is part of a broader study on bank model risk management practices.