Model Validation Case Study: Regional Bank Leverages Javelin Whole Loan (JWL) Platform for Model Validation Exercise

Client’s Challenge

  • A regional bank’s model validation process has come under regulatory scrutiny for lacking an analytic framework for testing their consumer loan models on a consistent basis.
  • The bank determined that it could leverage Five Bridges’ whole loan analytics by using JWL to test their model’s performance over a battery of statistical tests trained on different samples.

Our Solution

  • Through the use of the JWL’s model fit capability, model reviews could be conducted on a routine basis by comparing actual (sample)to model performance over time and over different statistical measures of goodness-of-fit applicable to their model specifications
  • The FBA modeling team worked with the bank’s model validation unit to import the bank’s models into the JWL Platform for analysis
  • Data mapping, inputs and assumptions necessary to feed the model validation analysis were worked out between the FBA and bank teams
  • To perform the review, Five Bridges’ model validation team leveraged JWL’s underlying prepay, default, and loss severity models for benchmarking purposes.
  • Following the review and benchmarking, the Five Bridges team compiled and documented recommendations to the client.

Outcome

  • By incorporating the JWL Platform into its existing model validation process, the bank was able to address weaknesses in the process identified by its regulator.
  • Following the success in model validation, the bank has also elected to leverage JWL in its model development process in conducting Champion-Challenger exercises