Under SR 11-7, what distinguishes a 'model' from a 'tool' for purposes of model risk management scope?
Select an answer to reveal the explanation.
Short Explanation and Infographic
Here's the deal — b is correct because SR 11-7 broadly defines a model as a quantitative method, system, or approach that applies statistical, economic, financial, or mathematical theories or techniques to transform inputs into quantitative estimates used for decision-making — which can include simple spreadsheets when they meet this criterion. A is incorrect because SR 11-7 predates modern ML and applies to traditional quantitative models as well.
Full explanation below image
Full Explanation
B is correct because SR 11-7 broadly defines a model as a quantitative method, system, or approach that applies statistical, economic, financial, or mathematical theories or techniques to transform inputs into quantitative estimates used for decision-making — which can include simple spreadsheets when they meet this criterion. A is incorrect because SR 11-7 predates modern ML and applies to traditional quantitative models as well. C has no basis in SR 11-7. D is incorrect — regulatory pre-approval is not required for model scope inclusion.