We need a common definition of ‘validation of internal models’ across countries, says OCC

The lack of a common definition of the ‘validation process’ of the internal credit risk measurement models across countries could cause problems in the cross-border risk management under the new Basel Accord, Basel II, according to New York-based Mark Levonian, the US deputy comptroller of the currency for modelling and analysis.

Levonian says he has met with bankers and regulators from other countries, and “their understanding of ‘validation' is different from what we mean here in the United States ”.

“I am hoping the validation sub-group in the Accord Implementation Group (AIG) will look into this and promote the discussion to have some kind of a harmonised, common or at least similar understanding of validation.

“In some countries, validation is understood as the comparison of, for instance, the probability of default