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Model risk and governance

Effective model governance is vital for maintaining financial stability, regulators’ trust, and overall company performance. It involves establishing a robust framework for financial models' risk management, validation, and ongoing monitoring processes.

Moody’s Model Risk and Governance Solutions are designed to assist companies — from banks to corporates — with their model life cycle management needs.

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Model Lifecycle Management

Model Lifecycle Management involves developing, validating, approving, deploying, monitoring, and governing models used for risk assessment, financial forecasting, and decision-making. As model usage increases, so does the responsibility to effectively manage model risk. This applies equally to both internal and third-party vendor models.

Model Lifecycle Management

The sophistication of risk management and governance practices scales with model complexity and the materiality of the relevant portfolios. Banks and corporates are likely to benefit from a flexible model lifecycle management platform that can accommodate diverse model risk profiles and a range of model governance tasks. This approach can bring robust tools to achieve transparency, repeatability, and auditability, promoting operational efficiency and strong internal modeling culture within the organization. 

Model risk management

Model Risk Management

Appropriate Model Risk Management (MRM) or model governance practices must be applied throughout the model life cycle to make sure models are valid, accurate, and appropriate for use. Such practices include monitoring model outputs, comparing model predictions with actual results, evaluating model performance under extreme conditions, reviewing manual adjustments, and more.
 

Applying effective Model Risk Management practices throughout the overall model life cycle is crucial for creating a stronger risk culture, strengthening institutional resilience, enhancing operational efficiency, and improving strategic decision-making — setting a foundation for a bank’s long-term success.

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Capabilities

01 Model Lifecycle Management

Model Lifecycle Management

Moody’s Model Lifecycle Management solution is a cloud-based collaborative platform that allows companies to build, manage and deploy their own or third-party models in one central, flexible and secure environment.

With our solution you can:

  • Develop credit, behavior or any other models, by using your own or external data, as well as various integrated model languages.

  • Create a robust model inventory: test, validate and monitor model performance, while keeping accurate, transparent and auditable documentation.
     

  • Execute your own or easily integrate the third-party models – optimizing model execution throughout your organization.

The solution introduces auditability, transparency, and repeatability throughout the modeling lifecycle, improves operational efficiency and uniquely addresses organization’s end-to-end model lifecycle needs. 

02 Model Risk Monitoring

Model Risk Monitoring

Moody’s Model Risk Monitoring solution helps banks standardize and automate the analytical tasks associated with monitoring trends in model output, helping models remain applicable to the portfolio to which they are applied and keeping judgmental overlays properly calibrated.

Our solution brings together Moody’s proprietary data, advanced analytics, and generative artificial intelligence (GenAI) technology to provide an expert-curated ongoing monitoring reporting framework. It helps banks:

  • Automate analysis of expected default frequency (EDF) trends, probability-of-default (PD) and loss-given-default (LGD) dispersion, and manual overrides to make sure models and scorecards remain appropriate for the portfolio of intended use.

  • Schedule standardized reviews of scorecard overlay factor responses to make sure factor correlation, information value, and transition notching metrics remain within established thresholds.

Our solution helps deliver polished, executive-level reports, including editable presentations and data appendices, with seamless integration via custom model output files or application programming interface (API) connectivity to Moody's models.

03 Portfolio Stress Test Summary

Portfolio Stress Test Summary

The Portfolio Stress Test Summary solution performs batch stress testing on portfolios under historical, hypothetical, and simulated scenarios within a single obligor credit risk modeling approach and a regulatory capital framework.

It allows banks to upload custom model outputs or connect to Moody's models via API for a streamlined visual analysis.  

Use Moody’s Portfolio Stress Test Summary solution to:

  • Perform advanced stress testing and credit portfolio analytics by leveraging Moody’s proprietary data and advisory team expertise.

  • Automate generation of graphical and tabular stress test outputs. Users can also populate PowerPoint graphics via Visual Basic for Applications (VBA), allowing for iterative updates to dynamic content while preserving manual edits.

The Portfolio Stress Test Summary solution helps deliver polished, executive-level reports, including editable presentations and data appendices, with seamless integration via custom model output files or API connectivity to Moody's models.

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