Developing efficient models at Stress Testing USA 2016

Developing efficient models at Stress Testing USA 2016

Ahead of the Center for Financial Professionals 4th Annual Stress Testing USA: CCAR & DFAST, we interviewed a range of thought leaders who delivered their professional insight, experience and expertise at the event.

Agus Sudjianto is Head of Corporate Model Risk at Wells Fargo and will be delivering a presentation on developing models to support the stress testing process. Agus has a wealth of experience in financial services, before his current role at Wells Fargo he served as Director of Analytics and Chief Model Risk for Lloyds Banking Group, prior to this he covered a product development role at Ford Motor Co. Agus will be using his current experience in the financial services industry from a range of organizations to discuss his experiences within model risk and provide insight to other institutions.

When asked why Model Risk and developing efficient models to support the stress testing process was such an important discussion point and one he wanted to address, Agus described CCAR as the ‘super bowl’ of modeling. Indicating the sheer depth and breadth required from the models supporting stress testing, and an insight as to why this should be such a focus area for all institutions compliant to CCAR and those on the verge of crossover.

“The process involved large numbers of interconnected models developed/executed by various organizations”

When questioned on the data capabilities of CCAR models and areas for institutions to be aware of to further support back testing, Agus highlighted that CCAR covers a vast area of modeling, including, but not limited to; Credit, Market, Counterparty and PPNR, although some of the examples share commonalities, they also all include their own unique requirements that must be managed by the model team in order to ensure efficient reporting and back testing for the full CCAR scope. This is a huge strain on model developers to ensure compliance and produce models that are supportive of CCAR and lead an institution through the necessary stages. With the data capabilities comes a range of data approaches, with the vast amount of data required to cover each of the outlined risk areas, not only the model capabilities, but the availability of historical and current data still remains a constant challenge.

Finally, we wanted to gain a further understanding as to how the role of the model risk professional is evolving and where Agus sees the profession developing over the next 12 months as the industry moves towards and complete 2017 stress tests. With the role advancing year on year Agus responded with there being a large increase in the intensity and involvement of model risk in all aspects of risk management; particularly CCAR. Model risk is an area that reaches far beyond stress testing, so developments apply across the institutions, with regulatory advances and continual data challenges, the requirements on model risk professionals are increasing in velocity.