CASE STUDY

Validation of Credit Risk Models at a Belgian Bank

Model Risk Management is becoming a priority for FIs and demands robust and transparent model validation capabilities and controls anchored with formalised MRM governance. As regulatory scrutiny and the reliance on models is growing in nearly all functions within organisations, FIs are aware that poor execution of MRM can lead to a failure to meet regulatory requirements and financial and reputational risks.

In this case study, we look at how a leading Belgian bank enhanced its model validation process with the Chiron App while easing regulatory reporting and automating repetitive work.

SMALL VALIDATION TEAM

Instead of hiring more people and expanding the team, the bank wanted to focus on making its processes more efficient.

REPETITIVE WORK

IRB models, in particular, require the same tests to be performed with some periodicity. The bank wanted to free up time to focus on SME tasks and quantitatively more challenging work through automation.

REGULATORY REPORTING

IRB models require regular validation cycles that include reporting the outcomes to the regulator. To comply with such requirements, the validation team often has to go back in time and reproduce specific outcomes.

The Challenges

One of the leading Belgian banks created a Model Risk Management framework applicable to credit risk models. It was looking for a technology to streamline its model validation process and make it more efficient. The bank faced capacity constraints as it expanded its model inventory. Validation backlogs and delays mounted as the small validation team struggled to cover expanding validation requests and address regulatory requests.

credit risk model validation

The Solution

The Belgian bank chose a SaaS deployment of the Chiron App to automate and significantly shorten the validation process. Its model validation team uses the Chiron App to validate Credit Risk models such as Probability of Default (PD) and Loss Given Default (LGD).

The Chiron App helps the model validation team to make the validation processes more efficient, reduce time spent on repetitive activities, and facilitate regulatory reporting. More frequent and comprehensive testing was made possible, while SMEs could focus on quantitatively challenging work.

TIME-SAVINGS

The time spent on repetitive tasks has been reduced by a factor of 10. This means the team now has the time to carry out more in-depth analyses, deep-dives into the data, and validate other types of models.

AUDIT TRAIL

Through versioning and keeping the linkage between Model Risk Management objects in the Chiron App, the internal validation unit can quickly go back in time, reproduce results, and respond to questions from regulators.

BETTER TESTING

The bank can spend more time on in-depth quantitative analyses and investigation of model issues. The Chiron App lets it source data independently (from the first line) and gives it control over the entire cycle.

The Chiron Advantage

The Chiron MRM technology is the first AI-driven end-to-end model risk management platform consisting of two technologies: The Chiron App & Chiron Enterprise. Both platforms have been developed with all the functionalities and flexible capabilities needed to accelerate and scale model risk management projects effectively.

The Chiron App has been designed to automate and standardise manual and repetitive tasks within the model validation process from testing to monitoring, resulting in considerable cost and time savings. All environments are fully managed within the platform, removing the need to manage Python environments and multiple libraries individually. More importantly, the Chiron App records all validations and specifications together with full details of users and changes to enable organisations to stay compliant.

Ready to transform your business? Let’s talk. Contact our sales team at yields.io/contact

Learn more about the Chiron MRM Platform at www.yields.io

Simon Vanooteghem

Director of Sales

Efrem Bonfiglioli

Solution Engineer

In 2022, the Chiron Model Risk Management Platform has won the ‘Model Validation Service of the Year’ award at the Risk.net technology awards for the fourth year in a row. Yields.io is widely recognized as a technology leader in MRM, and is supported by global partners such as KPMG and IBM.