Federal Reserve SR 11-7 Framework: Model Risk Management Implementation

Framework Overview

Federal Reserve SR 11-7 establishes comprehensive standards for model risk management across banking organizations. The framework emphasises three lines of defence: model development, model validation, and effective challenge, with particular focus on independent validation and ongoing monitoring procedures.

Implementation Requirements

• Model development: Comprehensive documentation, testing, and approval procedures for all model applications
• Independent validation: Separate validation function with appropriate authority and resources
• Ongoing monitoring: Regular performance monitoring, backtesting, and model updates

Challenge Mechanisms

Effective challenge throughout the model lifecycle requires independent validation, comprehensive testing, and systematic review of model assumptions and methodologies.

References

• Federal Reserve SR 11-7 - Model Risk Management
• Federal Reserve SR 13-1 - Supplemental Guidance