Enterprise risk management: coping with model risk in a large bank

Enterprise risk management (ERM) has become an important topic in today's more complex, interrelated global business environment, replete with threats from natural, political, economic, and technical sources. Banks especially face financial risks, as the news makes ever more apparent in 2008. This paper demonstrates support to risk management through validation of predictive scorecards for a large bank. The bank developed a model to assess account creditworthiness. The model is validated and compared to credit bureau scores. Alternative methods of risk measurement are compared. Journal of the Operational Research Society (2010) 61, 179-190. doi: 10.1057/jors.2008.144 Published online 7 January 2009 Keywords: enterprise risk management; model risk management; credit risk; statistical analysis