The Client's Requirements
The client, a global South African bank, planned to apply for IMM under Basel III. The IMM waiver
required the institution to introduce a back-testing framework including principles,
policies and procedures.
Our Solution
Based on our experience with an IMM application to the UK FSA, we helped the client to define a robust
back-testing framework, which was practical and fulfilled the regulatory requirements.
The Client's Benefits
In addition to being able to meet the regulatory requirements, we provided to the firm a framework, which
allows to quantify the quality of the model in economic terms. In addition to providing
a pass/fail statement for the model performance, we were able to give to management a cash denominated estimate
of the severity of the model's shortcomings.
