Model risk

Roles that need it

• Model Validation Analyst
• Credit Risk Model Developer
• Risk Advisory Consultant
• Data Scientist (Banking)
• Quantitative Analyst (Desk Quant)

Skills it belongs to

• Model validation and governance
• Risk judgment and escalation instinct

Related concepts

• Model validationModel validation is the independent review that checks whether a model is conceptually sound, built on suitable data, correctly implemented and performing as intended for its use. It is done before first use and periodically after, and its findings feed model approval and the model risk framework.
• Model inventoryA model inventory is the complete register of models a firm uses, with owner, purpose, tier, validation status, findings and limitations. It is the first principle of the PRA model risk framework and the basis for planning validations.
• BacktestingBacktesting compares a model's predictions with actual outcomes over time. For VaR it counts the days when losses exceeded the estimate; for credit models it compares predicted default rates with observed ones by grade. Too many exceptions signal a model that needs review.

Sources

• SR 11-7 Guidance on Model Risk Management, Federal Reserve (external site) accessed 31 Oct 2026
• SS1/23 Model risk management principles for banks, Bank of England PRA (external site) accessed 31 Oct 2026

Updated 31 Oct 2026.