WHAT THEY HEAR · THE BANK · RATE SENSITIVITY
Asked about interest rate risk, a bank's treasurer says: 'Our models assume deposits stay put when rates rise, and they have for years.' Rates have just risen faster than at any time in fifteen years.
// ← EVERY SEATRISK · COMPLIANCE · AUDIT
Top floor · The boardroom
Model Validator
Independently checks that the bank's models do what they claim, before anyone relies on them.
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// 01 — WHAT A MODEL VALIDATOR DOES
The work is adversarial by design: reproduce the model, test it on data it has not seen, probe where its assumptions break, and write the limitations down in a way that survives a regulator reading it. Credit, capital, pricing, provisioning and increasingly machine-learning models all pass through here.
// 02 — WHO ARRIVES HERE
Statistics, mathematics, actuarial and data science backgrounds, and analysts moving across from credit risk or finance.
// 03 — WHAT THE INTERVIEW ASKS
These are the shapes the round takes, not a question bank — banks phrase them differently and the wording is never the point.
- 01How would you test a model whose developer says it works?
- 02What does this model assume that the world may not?
- 03The model is accurate overall and wrong for one segment. What do you do?
- 04How would you explain a limitation to someone who wants to use the model anyway?
- 05When is a simpler model the right answer?
- 06What would make you refuse to approve one?
What the panel is listening for. Independence with evidence — a validator who cannot say precisely what is wrong is as unhelpful as one who signs everything.
The risk, compliance and audit quiz has no question for this seat yet. Its five were asked for the credit risk analyst, compliance officer, financial crime analyst, internal auditor and operational risk analyst seats, in the same block, and the temperament they score is the one this panel scores too.
Take the quiz →// 04 — ONE QUESTION, WORKED
QThe model is accurate overall and wrong for one segment. What do you do?
A strong answer sizes it first: how large the segment is, how wrong the model is there, and whether decisions on that segment matter — a pricing miss on a small book is not a provisioning miss on a large one. Then it separates the fix from the use: an overlay or a restriction on the segment while the model is rebuilt, the limitation written where a user will read it, and a refusal to let overall accuracy paper over a group the model does not describe.
A weak one says the model should be recalibrated, or approves it with a note, without asking whether anyone will act on the segment where it is wrong.
A validator is only as useful as the precision of what they can say is wrong, which is why the seat is adversarial by design and evidence-bound by necessity. A credit model is a claim about how borrowers behave; the quickest way to judge whether the claim is reasonable is to have read files where a desk made the call, and the drills are that reference point.
START HERE · The case drills
THE IN-TRAY · ONE MINUTE
Make the call on one file.
A short file on the ground this page covers. Every option opens with how far it sits from a senior banker’s read.
1 FILES · PICK A CALL ON ANY OF THEM
4 MORE ON THE BANK · RATE SENSITIVITY →WHERE DO YOU READ FROM? THE PLACEMENT →
// ALSO IN RISK · COMPLIANCE · AUDIT
- Credit risk analyst
- Market and liquidity risk analyst
- Operational risk analyst
- Compliance officer
- Financial crime analyst
- Internal auditor
The whole board, and how the four blocks fit together, is on what jobs banks hire for.
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