The Model Everyone Overrides
A rating model the analysts keep overriding, and the question every panel in these seats asks: is the model wrong, or are the people?
Banking Seat File No. 4 — Model validation · Credit risk
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// THE CASE
A bank's small-business rating model is five years old. Its ranking power has slipped, the portfolio defaults a little more often than it predicts, and analysts now override 38% of its grades — almost all of them upward, to a better grade. The credit team says the model is too harsh. The model's owner says it is working. The validation lands with you.
THE QUESTION
Is the model still doing its job, who is right about the overrides, and what is your conclusion?
WHAT EACH SEAT IS ASKED
- Model validation: What, if anything, is wrong with the model — in separate parts?
- Model validation: Who is right about the overrides, and how would you find out?
- Credit risk: What conclusion do you write, and what conditions go with it?
The worked answer — and the ninety seconds you would say out loud — are in the file.
// WHAT THE TEN PAGES CARRY
- What these panels are testingThe one instinct the seats' interviews listen for, and the three signals they grade.
- The caseThe file as it lands on your desk: the setup, the numbers, and the question each seat is asked.
- The worked readThree pages: what actually happened, how each seat records and answers it, and what not to accept.
- What you would sayThe answer in ninety seconds, spoken in the order a senior person in the seat speaks it.
- Three curveballsWhere the interviewer goes when the obvious case is answered, and how to respond.
// WRITTEN FOR THESE SEATS
Each seat’s page says what the job is, who arrives in it, and what its interview asks. Its practice paper is in the Exam Hall.
The businesses, the people and the figures in this file are composite and fictional; they do not describe a real business, transaction or bank’s policy. Practice, law and regulation vary by institution and jurisdiction.