Summary
This white paper discusses model risk management in the banking sector, emphasizing the importance of robust frameworks to mitigate financial and operational risks associated with model failures. It outlines the critical role models play in banking decisions, such as credit approvals and business lending, and highlights the consequences of inadequate model management, illustrated by Zillow's significant losses due to a flawed Automated Valuation Model. The paper details the Teradata Signal Framework, which integrates data, features, models, signals, workflows, and applications to enhance model performance and ensure compliance with regulatory standards. It also addresses the evolving regulatory landscape post-Great Recession, focusing on the Federal Reserve's guidance on model risk management. The document emphasizes the necessity for continuous monitoring, validation, and governance of models throughout their lifecycle to ensure they deliver economic value and adhere to legal requirements.
