Model Effectiveness and Model Risk Management During Times of Crisis

Large financial services companies are leveraging their models developed for financial projection, customer behavior, risk calculation and other use cases to inform rapid decision-making during this time of unprecedented change. The current health and economic situations, as well as many of the input variables for these models, are changing at a staggering pace and at amplified volatility. Qualitative adjustments or management overlays are increasingly being applied to model outputs when the outcome is not useful or for models that cannot incorporate the unprecedented actions taken by individuals and governments across the globe (e.g., stay-at-home orders, Coronavirus Aid, Relief, and Economic Security (CARES) Act). A postmortem review of the usefulness and accuracy of models during uncertain times will certainly be required.