Model Risk Management Topic of May Central Jersey Breakfast Series Meeting
Chapter Holds Third Meeting in Central Jersey Region
The NY/NJ Chapter recently held the third of a planned series of three breakfast meetings designed
specifically to enhance the professional development of financial decision makers at community banks
in the central New Jersey region. The meeting was held at the Radisson Hotel of Freehold on Thursday,
May 5, 2016 in Freehold, NJ. The Chapter holds regular monthly meetings at the Stony Hill Inn in
Hackensack, NJ which primarily serve community bankers in the northern New Jersey and metropolitan
New York regions. The Chapter plans to schedule additional breakfast meetings in the Central New Jersey
region during the fall of 2016.
Lisa Thouin, CPA from
the Mercadien Group, presents an informative Model Risk Management program.
Chapter Secretary Salvatore Zerilli, also from the Mercadien Group, welcomes attendees to the event.
Chapter Member Vince Tozzi, (c.) describes the modeling process utilized at his institution while other Members prepare to contribute.
Members enjoyed an extensive buffet breakfast featuring scrambled eggs with sausages, bacon and
home fries as well as a fine selection of cereal, fresh fruits, juices and coffee. Lisa Thouin, CPA
from the Mercadien Group, presented Model Risk Management. Lisa has extensive experience providing
audit and advisory services for community banks in New York, New Jersey and Pennsylvania. Lisa explained how measuring
and evaluating interest rate risk are important components of a bank’s overall capital adequacy plan.
She emphasized the importance of developing a plan that best fits a bank’s needs along with proper
validation of the plan to verify that the results are effective.
Lisa defined a model as a quantitative method consisting of data input and reporting in order to
measure risk under various interest rate and economic assumptions. She cautioned that every model
presents certain risk factors that can lead to financial loss or ineffective decision making unless
the plan is developed, managed and validated properly. She emphasized the importance of performing
adequate sensitivity analysis, stress testing and back testing to measure plan effectiveness.
Lisa strongly suggested that validation should only be performed by competent personnel separate from
those involved in the model input and development.
Lisa challenged the Members in attendance to provide examples of the models currently in use at their
institutions. The financial managers disclosed the methods each are currently utilizing to develop effective
models and manage risk by testing the results using a number of interest rate assumptions. The
attendees are generally from smaller institutions that utilize models developed by third-party software vendors.
This process provided a very effective exchange of ideas among the Membership and clearly showed the added
value of attending the event.
The program concluded by Lisa recommending that banks should conduct a periodic model review on at least
an annual basis to determine if it is working as intended, which can be made a part of the internal audit
process. She stressed the importance of senior management establishing adequate policies and procedures,
assigning competent staff and overseeing the model development and implementation.
Speaker Lisa Thouin, CPA describes the common systems utilized in the bank decision making process.
Financial managers learn current perspectives on model risk managment.
Lisa Thouin, CPA emphasizes the importance of the model validation process.