TAKING MODEL RISK MANAGEMENT (MRM) TO THE NEXT LEVEL The COVID-19 pandemic is taking a terrible toll in human life and in the livelihoods of millions the world over. As people and institutions struggle to contain the spread of the virus, the measures necessarily imposed have caused major economic disruptions. Every industry has been affected, and banking is no exception. Capital, profit-and-loss, and liquidity positions have been hit very hard. One consequence has been that banks models have broken down across their business. The flaws have put the reliability of these models in doubt and suggest that they cannot be trusted to help banks navigate through the crisis. Few business leaders could have foreseen a global economic shutdown of this. QUESTION 1 1.1 With reference to the banking sector, justify the application of risk modelling techniques and suggest the reasons why banks are experiencing more model failures with further issues expected with time. Provide relevant examples for your discussion. 1.2 As suggested in the case study, banks must urgently address the model failures and make needed adjustments to avoid having to rely only on the analysis and judgment of experts. Comment on how this should be achieved. 1.3 In the context of the case study, critically discuss what a more proactive MRM entail.