News release: “The Office of the Comptroller of the Currency (OCC) issued guidance today that provides a clear statement of expectations for banks that use quantitative models in any aspect of their business. The guidance addresses “model risk,” which is the potential for damage when models play a material role in bank decision making.The new guidance, developed jointly with the Board of Governors of the Federal Reserve System, describes a number of important risk management practices related to model use, including “effective challenge” of models through model validation, strong governance, internal audit coverage, and clear internal policies and documentation. Banks routinely use models for a broad range of activities. In recent years, banks have applied models to more complex products and with more ambitious scope. The guidance notes that while these models can be important and valuable tools for banks, and can improve business decisions, they also introduce new risks, and those risks must be managed by banks. Although many banks already follow at least some of these practices, the OCC expects all national banks to consider the new guidance and modify their model risk management frameworks as necessary.”