Model validation testing

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Model validation testing

PwC has assisted a large number of midsize and large banks with the independent validation testing of models for CCAR and DFAST submissions.

Client’s challenge

A number of banks asked PwC for assistance with independent validation testing of CCAR/DFAST stress testing models for 2013 to 2017 submissions.

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PwC’s solution

Over the period from 2013 to 2017, PwC assisted numerous banks of different sizes with validation testing of over 700 models used in CCAR/DFAST stress testing, including:

  • Over 500 Pre Provision Net Revenue (“PPNR”) models used to project fees, expenses, balances, rates, and other components of PPNR;
  • Over 150 retail and wholesale credit loss forecasting models for a broad range of loans including retail and commercial mortgages, home equity loans and lines, credit cards and other unsecured products, auto loans, commercial & industrial loans, other types of wholesale loans, etc. The methodologies covered by these models ranged from top-down (portfolio or segment-level) time series models, to account/loan level competing risk hazard models, dynamic transition matrix approaches for retail and wholesale loans, z-score type of rating transition models for wholesale loans, and others.
  • Stress operational risk models,
  • RWA engines and stress forecasts aggregation systems,
  • Market risk models.

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Impact on client’s business

PwC performed comprehensive testing of models using the process and methodology we have developed over the last 17 years of delivering model validation services. The work was documented within comprehensive and detailed model validation reports provided to the clients with a set of accompanying testing workpapers. Where the client lacked internal rigorous model validation procedures and standards, we provided knowledge sharing and supplied the client with procedures and templates to leverage going forward.

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How PwC can help your business

PwC’s model risk management practice offers a full range of Advisory services to assist you in identifying and managing the ​model ​risks associated with ​models used for risk management, valuation, and financial/regulatory reporting purposes.

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Jason Dulnev

Principal, Risk Analytics, PwC US

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