The Division of Federal Home Loan Bank Regulation Needs to Improve Controls Over Internal Model Risk

FHFA's DBR Deputy Director should ensure that ORAM evaluates its current internal model risk management practices in line with FHFA’s model risk management supervisory expectations (defined in AB 2013-07 and AB 2022-03) and design controls to (1) periodically review and maintain its model risk inventory (to include a risk-based validation schedule), (2) engage external resources to perform independent model validations in accordance with the validation schedule, and (3) conduct model performance tracking. Further, ORAM should update and finalize its policies and procedures to reflect the internal model risk management practices adopted.

FHFA's DBR Deputy Director should ensure that ORAM evaluates its current tracking mechanism for FHLBank requests for approval of market risk model changes and implement policies and procedures to ensure that the date that a complete model change approval request is received is tracked.