Fair lending analysis tries to estimate a causal effect between race, gender or age and credit decision or pricing based on consumer lending transaction data from mortgages, credit cards, and auto loans. Crucial aspects of the analysis rest on assessing the strength of the causal effect measured by the odds ratio or marginal effect. The…

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SR 11-7 and OCC 2011-12 have changed the landscape of model risk management broadly (…and for the better) and in particular the practice of model validation. This guidance, which is essentially rules in the US, have been broadly adopted with modifications to fit local jurisdictions around the globe, provide a definition of what is a…

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by Kevin D. Oden, Ph.D., Managing Director, RMA Model Validation Consortium Ever since Harry Markowitz introduced modern portfolio theory, or mean-variance analysis, in 1952, banking has relied on advanced mathematics to automate and improve decision-making. While risk-based portfolio management is the most famous example of mathematical models penetrating banking, today they are deployed across the…

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PLUS OUR TIPS ON AML MODEL VALIDATION BEST PRACTICES by Kevin Oden, Ph.D., Managing Director, RMA MVC Scott Rayburn, Product Marketing Manager Given the clandestine, illicit nature of money laundering, it is impossible to know how much “dirty money” enters the international banking system each year. As a point of reference, the United Nations Office…

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