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OCC Bulletin 2011-12 & Fed SR 11-7 Regulatory Framework
"Medium overall model risk. Requires formal independent validation, detailed specifications, and bi-annual performance reviews."
Evaluate financial models against 32 regulatory factors to resolve official Model Risk Tier 1 (High), Tier 2 (Medium), or Tier 3 (Low) risk classifications.
Capital, revenue, pricing or transaction loss impact if wrong.
Medium: $1M–$50M exposure; moderate impact on earnings.
Exposure to BSA/AML, fair lending, ECOA violations or regulatory audits.
Medium: Informs regulatory files with low risk of heavy audits.
Potential brand damage, public mistrust, or negative media coverage.
Medium: Confined to specific business units or partners.
Mission-critical operations dependence vs ancillary utility.
Medium: Important but non-critical; manual fallback workarounds exist.
C-suite strategic decision reliance or core product launch centrality.
Medium: Feeds business unit plans or product optimizations.
Tier 2 — Medium Risk
Requires formal independent internal validation & bi-annual reviews.
Intrinsic Risk breakdown
"Medium overall model risk. Requires formal independent validation, detailed specifications, and bi-annual performance reviews."