Interview with Yidong Liu, Director, Commercial Credit Scorecard Modeling, Credit Strategies Group with MUFG Union Bank, N.A., on key topics to be discussed at the upcoming GFMI 5th Edition Model Risk Conference, on January 26-28, 2015 in San Francisco, CA 

Model risk issues are as important as ever in the environment where the regulatory pressures are mounting and resources are scarce. Today, model development, validation and assessment require new tools and a range of quantitative and qualitative measures to tackle model risk issues. At the 5th Edition Model Risk Conference, Yidong Liu with MUFG Union Bank, N.A. will touch upon how to facilitate positive communication between model developers and validators in his stand alone case study presentation. Yidong gives pre-conference insights into his session and the conference topics:

What are the key trends and developments in model risk management today?

YL: Currently, model risk management involves regulators, an audit department, a model validation department, a model development department, and model users. These groups are not clear where the boundaries of their duties end. Because of the lack of clarity, communication between each group is critical at present.

To ease the tension between these groups, a well accepted protocol is necessary. One that is understood by all and calls for cooperation across the multiple company divisions.

At the conference, you will be talking about relationships between model developers and model validators.  What are the major challenges in these communications?

YL: Model validators and model developers have common interests, but different goals. The common interest is that we all work for the same bank. The goals of model developers include: satisfying model users, using available resources to address business issues, passing model validation and regulatory requirements. The goals of model validators include: following the model validation procedures and satisfying auditing and regulatory requirements.

The main challenge is that the same model validation procedure cannot be applied to each model since they are different. Benchmarks testing and back testing are not available for economic capital calculation. In addition, scenario testing is hard to apply to CCAR models since the correlation under stressful scenarios is usually not the same as the correlation among normal scenarios.

How can relationships improve and become stronger between model developers and validators?

YL: First of all, model developers and model validators should respect each other and understand the limitation from each side.

Model validators need to be aware of the data and people resource limitations that developers face in their operations. On the other side, model developers need to take into account the knowledge and time limitations that hinder project efficiency for model validators.

To fix this void between the two, companies need to train model developers and validators together.

What is the role of internal audit in model development and validation?

YL: Because the boundary between model validation and audit is not clear, it is important for the auditor and model validator to work closely together.

One solution is to perform auditing and model validation at the same time. In this system, model developers save time by avoiding explaining the same topics twice. This approach also avoids any gap between auditing and model validation. I have personal experience in checking system implementation data quality from both perspectives (model validators and auditors).

What do you think you will gain by attending this event?

YL: I look forward to learning from each other. If other banks have had similar experiences and found effective solutions, then we will save time compared to trying to find solutions on our own.

Although different banks have different model risk management procedures, they all have similar models. Understanding the limitations and assumptions of common models will help people understand real model risks and find effective ways to measure/manage model risks.

All responses represent the view of Mr. Liu and not necessarily those of MUFG Union Bank, N.A.

For more information, please contact Tyler Kelch, Marketing Coordinator, Media & PR, GFMI at 312-894-6310 or tylerke@global-fmi.com

About Yidong Liu

Director, Commercial Credit Scorecard Modeling, Credit Strategies Group, MUFG Union Bank, N.A.

Yidong Liu is a financial risk veteran with 18 years of working experience in different financial institutes. Yidong started his first job as a model validator at Global Analytics in CIBC bank at Toronto, Canada. At that time the model validation was called vetting. The team validated models in trading floor systems and models implemented in Excel. Later on, Yidong worked on model validation at PNC bank and BBVA Compass Bank.

Currently, Yidong is the manager of the Union Bank wholesale scorecard PD modeling team. The team supports scorecard modeling, CCAR stress testing and acquired asset valuation. Yidong Liu received his MS in Computer Science from University of Toronto and his MS in Applied Math from University of British Columbia. Yidong also holds CFA and FRM certificates.

About GFMI

GFMI (a marcus evans company) conferences annually produce over 2,000 high quality events designed to provide key strategic business information, best practice and networking opportunities for senior industry decision-makers. Our global reach is utilized to attract over 30,000 speakers annually; ensuring niche focused subject matter presented directly by practitioners and a diversity of information to assist our clients in adopting best practice in all business disciplines.

 

You need to be a member of Global Risk Community to add comments!

Join Global Risk Community

Votes: 0
Email me when people reply –

Replies

  • Thanks for this detailed blog, choose Data science courses from learnbay.

This reply was deleted.

[Free COVID-19 Framework] What's the path to recovery look like?

We created a free presentation (attached), which discusses both global and organizational impacts of the COVID-19 pandemic, along with critical actions organizations should take immediately. This presentation introduces a framework that helps regions and organizations navigate a path to recovery via 9 potential scenarios. These scenarios capture outcomes related to GDP impact, public health response, and economic policies. The presentation also breaks down 6 immediate and critical actions…

Read more…
3 Replies · Reply by Boris Agranovich Jan 2
Views: 72

If risk management is about decision making, are current risk management solutions irrelevant?

Now that the updated COSO and ISO risk management standards emphasize a connection to enterprise objectives and decision making, does this mean ERM and GRC solutions focused on risk registers and regulatory compliance are missing the true value of risk management?Will current risk management solutions evolve to integrate more decision support functionality or will standalone prescriptive analytics and other technology solutions take a more prominent role in enabling risk-informed…

Read more…
3 Replies
Views: 43

A question related to classification of instruments between trading and banking book.

We have an interesting question from one of our members.       "We usually perform OTC FX transactions with clients backed-to-back on the market (with Banks). Now we are going to perform a FX swap (i.e. Spot + forward) JPY/EUR for the Bank account for 1 week at the longest. The purpose is to get EUR place @ CB for LCR compliance purpose (no trading purposes). Bank's Management think that this should be considered as a trading position and therefore be classified within the Bank's trading book.…

Read more…
4 Replies
Views: 106

Plunging oil prices: curse or blessing in disguise?

The recent sudden crash of oil prices has had a major impact on the world economy, leading to many troubled faces in the international arena. The Russians fear the effects of yet another powerful hit on their economy, Venezuela seems to be considering default and the Americans are weary of the consequences for its young and emerging shale oil industry. And then you have the Middle East, where the smallest match is enough to ignite the largest fire. But are these worries really justified or…

Read more…
1 Reply
Views: 18

Introducing the Global Risk Series - Book 1 Risk Management How Tos

Dear GlobalRisk Community member, Our community’s mission is to foster business, networking and educational explorations among members. Learn from some of the top experts in the industry as they clearly explain how to approach the most important Risk management concepts. Check out their expert tips and use the link at the end of each article to navigate back to the website to leave your comment or ask a question. Some of the topics include: How do you Explain Risk Appetite?  How to Prepare a…

Read more…
12 Replies
Views: 218

    About Us

    The GlobalRisk Community is a thriving community of risk managers and associated service providers. Our purpose is to foster business, networking and educational explorations among members. Our goal is to be the worlds premier Risk forum and contribute to better understanding of the complex world of risk.

    Business Partners

    For companies wanting to create a greater visibility for their products and services among their prospects in the Risk market: Send your business partnership request by filling in the form here!

lead