Why Model Risk Management Is On the Brink of Failure

Article

In a fast-evolving financial landscape, model risk management is under unprecedented pressure. As regulatory expectations rise and institutions struggle to keep pace, outdated assumptions, staffing shortages, and fragmented oversight are creating systemic vulnerabilities. Experts warn that unless banks adopt proactive, integrated, and forward-looking MRM strategies, the next crisis could already be taking root within their own models.

May 01, 2025

Tags: Model risk

Why Model Risk Management Is On the Brink of Failure

The views and opinions expressed in this content are those of the thought leader as an individual and are not attributed to CeFPro or any other organization

Regulatory expectations are rising, often without consistent application across institutions
Models deemed sufficient last year may now trigger MRAs due to shifting scrutiny
Liquidity, interest rate, and capital risks are increasingly interdependent
Skill shortages and staff burnout are weakening model governance
Real-time, forward-looking risk monitoring is now essential
Regulators are beginning to focus more on AI and early warning indicators
Proactive roadmaps and transparent communication can mitigate regulatory friction
Institutions must shift from siloed to integrated risk management
Cultural change is needed to elevate MRM as a strategic function
Inaction or delay in adapting MRM could result in major financial and reputational damage

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