Credit Risk Modeling and Analytics Infrastructure

The Oakleaf Group was retained to provide modeling and analytics services to support Northern Trust’s CCAR Stress Testing practice.  Part of the services was to develop applications and tools for credit risk models, aiming for an integrated, efficient, and controlled model execution and analytics environment. This model infrastructure included a Credit Demand Estimation Tool implemented in SAS for aggregating credit risk forecasts and estimating capital reserves across Northern Trust’s entire loan portfolio, a SAS plotting and tabulating engine allowing modelers to create and customize charts and tables for the Stress Testing reports, an Interactive Reporting Tool developed with Excel/VBA and regularly used in management meetings by executives and managers to interactively analyze modeling results and decide strategies from model overlays to capital reserves, a documentation automator developed with Word/VBA to intelligently update graphs and tables in the CCAR reports, and a Credit Loss Projection Tool (CLPT) that was developed with an Excel/VBA/SAS framework and provided capabilities of integrated execution for all credit risk models, data management, controlled run configuration, and tracking on execution status and metadata.

 

The project contains multiple sub tasks over years to build a suite of applications and tools to support the model execution, data analysis, and reporting.  All the solutions were proposed after a comprehensive analysis of the regulatory requirements, client’s project status, technology environment, timeline, and budget, and were implemented in accordance with IT governance.  

 

Northern Trust’s existing Credit Demand Estimation Tool (CDET) was created with MS Access, which was prone to error (consisting of 100+ SQL queries and manual steps) and had a low performance.  Oakleaf Group assessed the status of the technology environment and redesigned and developed the tool using SAS, which significantly improved the performance, integrity, and robustness.  Also, with the introduction and implementation of the structured and modular coding, the response time for updated processing logic and tool maintenance was significantly reduced. These improvements brought the capabilities of integrated and controlled executions and analysis of complex scenarios.

 

Oakleaf Group supported Northern Trust’s analytical research and statistical analytics, and developed a SAS plotting and tabulating engine to automate the generation of ALL the charts and tables used in the credit risk CCAR Stress Testing reports.  A superior feature is the automation of the process of embedding model results into documentation and formatting for end user presentation and consumption.

 

Oakleaf Group proposed and developed an Excel/VBA-based data visualization tool that was regularly used in NT’s management meetings to allow executives, managers, and modelers to interactively analyze modeling results and decide strategies from model overlays to capital reserves. 

 

After analyzing Northern Trust’s regulatory requirements, Oakleaf Group proposed and developed the Credit Risk Model Execution Platform (with an Excel/VBA/SAS architecture) within two months to meet the deadline for production execution.  The execution platform integrated the previously decentralized, modeler-dependent model execution process, and provided the application/UI layer that allows controlled configuration for regular and overlay runs, data management, and tracking of execution process and metadata.  Combined with the practice of structured and modularized model implementation, the platform significantly mitigated Northern Trust’s credit model execution risk and well met the regulatory requirements for the execution control.