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Governance

Model risk appetite

A board- or senior-management-approved statement of how much model risk an institution is willing to accept in pursuit of its business objectives, used to guide model tiering thresholds, validation resourcing, and escalation criteria for identified model limitations.

Last updated: Last reviewed by: Model Risk Directory editorial team

How the term is used in model risk management

A board- or senior-management-approved statement of how much model risk an institution is willing to accept in pursuit of its business objectives, used to guide model tiering thresholds, validation resourcing, and escalation criteria for identified model limitations. The exact implementation varies by institution, model type, risk rating, and governing framework. Use the linked regulatory pages and buyer guides below for scope-specific requirements.

Related glossary terms

Model tieringModel governanceModel risk

Guides and frameworks that use this term

GuideModel Risk Management FrameworkA model risk management framework is the documented set of policies, roles, and processes an institution uses to identify, tier, govern, and validate its models. Under SR 26-2, a sound framework covers model development and use, independent validation, and governance and controls, scaled to the institution's size and model risk profile rather than applied uniformly.