Model Risk Management
We define model risk as the risk of the Mizuho group incurring tangible and intangible losses due to decision-making based on an inadequate or failed model and/or inappropriate use of a model.
In recent years, against the backdrop of the wider and more complex business operations of financial institutions and technological innovations such as artificial intelligence, the opportunities to use models in the operations of financial institutions have been expanding, and their materiality and impact have been increasing. Under such circumstances, there is a growing need to manage model risk by focusing on the risk of tangible and intangible losses arising from decisions based on improper development and inappropriate use of these models.
We supervise model risk management for the Mizuho group and are promoting comprehensive and effective model risk management throughout the group. Specifically, we are currently conducting a complete model survey on a group and global basis covering all business categories, including banking, trust banking, and securities businesses, and covering all of the regions of Japan, the Americas, EMEA and Asia-Pacific. With the commitment of the senior management, we will grasp and visualize the status of model risk, promoting appropriate model risk management on a risk-based approach.
Model Risk Management Structure
Our Board of Directors determines the Mizuho group's basic matters pertaining to model risk management. In addition, the Business Policy Committees (specifically the Risk Management Committee) comprehensively deliberate and coordinate basic policies pertaining to model risk management, and matters relating to administration and monitoring. Our Group CRO is responsible for matters relating to planning and administration of model risk management. The Risk Management Department is responsible for monitoring model risks, making reports, analyses, and proposals, etc., and makes and promotes plans for model risk management.
We manage model risk situations for the entire group based on the reports received from the core group companies on their model risk management. In particular, individual companies which are determined to be highly susceptible to model risks establish their own basic policies, and their respective boards of directors determine important matters pertaining to model risk management.
Method of Model Risk Management
Our model risk management is carried out through model testing, monitoring, etc. by the first line of defense, which consists of model owners, users, developers, etc. and through model validation and other methods by the second line of defense, which controls model risk via reviewing and challenging the first line of defense in every step of model identification, development, use, change, and exit.
Furthermore, we carry out model risk management based on a risk-based approach with weighting according to the materiality and impact of the models.