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The New York Fed (they are on a great roll lately with their research!) just released a really interesting piece called “Economic Capital: A Better Measure of Bank Failure?” ( https://lnkd.in/dCNeSKWf ) and I think it speaks to something many of us in risk management have been talking about for years. The researchers built a solvency metric called Economic Capital (EC) which is basically the present value of a bank’s assets minus the present value of its liabilities and opera

As I’ve mentioned in a few recent posts, even though the Fed has started lowering short rates, the longer end of the curve has remained flat and even ticked up a bit. For example, the 10-year Treasury is up about 10 basis points since the Fed lowered rates.  Despite this, mortgage rates have actually come down significantly, from around 6.9% in late May on a 30-yr fixed rate to around 6.30% in early October. What’s driving that? One big factor has been spread tightening in th

Model risk management isn’t one-size-fits-all. On October 6, 2025, the OCC issued Bulletin 2025-26 ( https://lnkd.in/diiunKRc ), reminding community banks that model risk practices, including how often models are validated, should be right-sized to an institution’s complexity, resources, and risk profile. I was glad to see the OCC explicitly say it does not expect every model to be validated every year. I’ve long believed that a thoughtful, risk-based approach beats a blanket

It looks like we are headed into a bull steepener yield curve scenario.  ↘️ Front-end treasury rates (2-year) are already coming down as markets price in multiple Fed cuts. Futures show an 87% chance for a 25pbs cut in Sept, 54% for another 25bps in October and a 43% chance for an additional 25bps at the December meeting.  ↗️ Yet the 10-year remains stubbornly high. This is likely a pivot point in the rate cycle and institutions should be stress-testing their balance sheet. ✔

But it's not a model!!  This might sound obvious to most of us as BSA/AML transaction monitoring systems have been treated as models for years. But every so often, I still run into pushback questioning whether SR 11-7 really applies to these models. ✋ The common pushback sounds familiar: “It’s not really a model”, "there aren't really any calculations", or “back-testing doesn’t apply here.” But the reality is, based on regulatory guidance, it DOES meet the definition of a mod

We all know the saying as it relates to model data: 🚮 garbage in, garbage out 🚮 .  🚨 But when it comes to AML models, the stakes are obviously much higher... Many institutions invest millions in advanced AML systems, yet the models are only as effective as the data feeding them. 🛑 Inaccurate, inconsistent, or incomplete data can inflate false positives, obscure suspicious activity, and drain compliance resources. And even worse, it can leave real financial crime undetecte

As most banks and credit unions work to calculate and finalize their Q2 2025 CECL reserves, KPMG released their Q2 CECL Pulse Check survey ( https://shorturl.at/FJaBi ) and I wanted to share some takeaways. They surveyed 23 banks and 4 finance firms and the results were not surprising. A few things that stood out: - Forecasting remains a big challenge as 88% cited economic outlooks (especially government-driven ones) as the toughest part of ACL estimation. - Economic uncertai

In an environment marked by rising funding costs, increased deposit mobility, persistent unrealized losses in bond portfolios, and heightened regulatory scrutiny, I wanted to share some practical ideas for how to ensure your liquidity stress testing is a truly meaningful and actionable exercise. 👉 Deposit Segmentation: One of the most persistent challenges I’ve seen over the years is effectively segmenting the deposit portfolio to truly identify where potential outflow risk

I had the opportunity yesterday (July 2025) to present a webinar to nCino's Portfolio Analytics clients on a topic that continues to be very relevant, and some would say urgent: Know Your Deposits: Avoiding Hidden Risks in Interest Rate and Liquidity Risk Management. Too often, we still rely on static categories like “core” vs. “non-core” or “sticky” vs. “non-sticky”, but those binary labels just don’t hold up in today’s environment. Digital banking, rate-shopping apps, real-

The FDIC published its quarterly banking profile for Q1 2025 yesterday. While the report looks "solid" on the surface, once you dive in a bit, the data is not as encouraging.. The banking industry turned in a “good quarter” by the numbers: Earnings up ROA at 1.16% Deposit growth continues Only one bank failed …but if you’ve spent time around balance sheets and risk models, you know that headlines can be deceiving. Earnings: up, but ..... Q1’s profit boost came mostly from non

If your institution relies on vendor models, this might save you from costly missteps and regulatory headaches. 🛑 Model Certifications ≠ Model Validations! Wanted to clarify something for the banks, credit unions, and fintechs out there navigating model risk: A model certification of a vendor model is important and a valuable starting point. It gives users confidence that the core code and calculations perform as intended, under typical conditions. For vendors, it’s a seal o

I’ve always been intrigued by crypto and the blockchain. But mostly from a distance as I'm pretty risk averse on the personal investing side and it hasn't really crept into, or impacted, my day job working with community banks and credit unions on model risk. Until now. 🪙 Stablecoins are starting to go mainstream and they’ve officially got my attention. If you’re not familiar, stablecoins are a type of digital currency designed to stay pegged to a stable asset - usually the

Let’s be real - no one really gets too excited about a model validation. For many model owners, it can feel like a frustrating drain on...

The OCC just released its Spring 2025 Semiannual Risk Perspective and, for community banks, it mostly backed up what we already know. 🏢...

Now that I’ve launched my own firm, ValuRisk Partners, I’ve been reflecting on some of the lessons that have shaped how I approach model...

One of the most common pitfalls in liquidity stress testing is using scenarios that escalate in severity but lack internal consistency....

For many financial institutions, CECL implementation was a heavy lift - one that checked a regulatory compliance box and moved on. But the most effective institutions see CECL as more than an accounting requirement. They see it as a strategic tool. And the best way to ensure that tool is working as intended? A thorough, independent CECL model validation. In this post, we’ll explore how a robust CECL validation adds value far beyond compliance, enhancing reserve precision, rep

Intricate geometric glass ceiling reflecting the sky, creating a mesmerizing pattern of blue squares. Why Model Integrity and Scenario...

In an era marked by rapid interest rate shifts, evolving depositor behavior, and geopolitical uncertainty, financial institutions can no...

In today’s highly regulated and data-driven financial environment, models are at the heart of decision-making, from credit underwriting...