I work in banking regulation. Its hilariously stupid

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stratozyck
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26 Jul 2022, 9:47 am

I work as a "Model Validator." The role did not exist prior to the 2008-2009 crash. On the face of it, it makes sense. The Dodd Frank regulations required banks to do more risk management surrounding their extensive use of models in their decision making. Banks use models for credit scores, but also predictions of how they will do in an economic downturn. I work in that last part.

So the act required an annual stress test called CCAR (pronounced "sea car"). There is also semi annual DFAST ("dee- fast").

Sounds good so far, right? Basically the rules say banks need to have a model risk framework that includes people checking models independent of the people who make them and use them.

So far, so good right?

Its been 10+ years and banks have mostly adjusted to the regulations and everything is fairly mature. The result is no major banks are non compliant. Most banks have mature model risk departments.

This creates problems for regulators. How do we appear to prove our worth? How do we prove that we are still... regulating?

So the end result is now they want to expand their access to our IT systems that track our work. They apparently are now going to start looking at start and end dates for projects.

NO WHERE in the published regulation did it say "regulators shall ensure dates of projects." It just says "ensure the bank is doing model risk."

I just sat through a discussion where someone said "our regulators had a 2 hour phone call with us about a project that started and ended the same day, and they didn't understand someone just likely forgot to officially start it but did, and saw this when they submitted it. The system won't let you backdate."

So yes, your bank and tax payer dollars are going to pay people 100s of thousands a year to have this discussion.

I am one of the few people who has a job that doesn't think the job should exist.



Fnord
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26 Jul 2022, 9:57 am

stratozyck wrote:
I work as a "Model Validator." The role did not exist prior to the 2008-2009 crash. On the face of it, it makes sense. The Dodd Frank regulations required banks to do more risk management surrounding their extensive use of models in their decision making. Banks use models for credit scores, but also predictions of how they will do in an economic downturn. I work in that last part.

So the act required an annual stress test called CCAR (pronounced "sea car"). There is also semi annual DFAST ("dee- fast").

Sounds good so far, right? Basically the rules say banks need to have a model risk framework that includes people checking models independent of the people who make them and use them.

So far, so good right?

Its been 10+ years and banks have mostly adjusted to the regulations and everything is fairly mature. The result is no major banks are non compliant. Most banks have mature model risk departments.

This creates problems for regulators. How do we appear to prove our worth? How do we prove that we are still... regulating?
The same ways that bureaucrats everywhere justify their employment long after their jobs are no longer needed.

They re-write the rules and/or engage in "Mission Creep".
stratozyck wrote:
So the end result is now they want to expand their access to our IT systems that track our work. They apparently are now going to start looking at start and end dates for projects.

NO WHERE in the published regulation did it say "regulators shall ensure dates of projects." It just says "ensure the bank is doing model risk."

I just sat through a discussion where someone said "our regulators had a 2 hour phone call with us about a project that started and ended the same day, and they didn't understand someone just likely forgot to officially start it but did, and saw this when they submitted it. The system won't let you backdate."

So yes, your bank and tax payer dollars are going to pay people 100s of thousands a year to have this discussion.

I am one of the few people who has a job that doesn't think the job should exist.
Yup!  Called it!

:lol: