The US Federal Reserve’s 2011 guidance on model risk management, SR 11-7, is facing renewed scrutiny, with the Bank Policy Institute advocating for its removal, a move that has sparked alarm among model risk managers within major banks, according to a report published by Risk.net on March 13, 2026.
While boards acknowledge the importance of model risk in a formal sense, many banks treat it as a regulatory compliance function rather than a critical component of decision-making, the report states. This disconnect leads to a situation where warnings from model risk and internal audit departments often fail to trigger urgent action unless regulators intervene.
The core concern, according to several senior model risk executives who spoke anonymously to Risk.net, is whether boards and senior leadership truly understand the implications of model weaknesses on capital, pricing, and risk appetite. One executive at a large US bank admitted that openly questioning this within their institution would be “something they would dare not ask.”
The prioritization of revenue-generating functions over control functions is a recognized reality within banking, one model risk executive explained. “Boards are not there to elevate every control function above the commercial engine of the firm,” they said, acknowledging that model risk was unlikely to surpass revenue generation in the competition for senior attention.
However, this prioritization can lead to a culture of reactive compliance, where issues are addressed only when flagged by regulators. Risk.net reports that this approach can allow serious weaknesses to persist until they become impossible to ignore, representing a failure of management judgement when material problems are identified but not addressed proactively.
The issue extends beyond simple prioritization. In some cases, model outputs are not used to inform decisions but rather to justify pre-determined outcomes. Risk.net describes instances where model risk teams are pressured to adjust results to align with desired business outcomes, effectively “reverse-engineering comfort” from a tool designed to impose discipline.
To gain greater influence, model risk executives are shifting their approach, moving beyond traditional governance scripts and focusing on areas that resonate with board priorities: efficiency, automation, scalability, and execution. Demonstrating how model risk management can support these goals – through automated testing, faster validation cycles, and streamlined governance – is seen as crucial for securing greater attention.
This shift presents a challenge, however, as the increasing adoption of artificial intelligence introduces new complexities. AI systems, often opaque and complex, are still models themselves, and a failure to prioritize robust model risk management could widen the gap between perceived model performance and actual results, particularly as regulatory pressure eases.
Despite the challenges, some banks are perceived as having more effective model risk cultures. Barclays and JP Morgan were repeatedly cited in conversations with practitioners as institutions where model risk teams felt their work was taken seriously, according to Risk.net.
The experience of model risk managers appears heavily influenced by the background of senior leadership. Banks with chief executives or chief risk officers (CROs) who possess a strong quantitative background tend to foster a more supportive environment for risk functions. A former model risk head at a large US bank stated that appointing a business-oriented individual as CRO – someone who “understands us” – often signals a lack of genuine commitment to independent risk challenges.
Barclays’ Chief Executive, CS Venkatakrishnan, previously served as the bank’s CRO and held a risk division role at JP Morgan, a career trajectory that, according to sources, contributes to a more positive view of risk functions within the organization. Banks that prioritize risk governance, these sources say, select CROs specifically for their independence, strong views, and willingness to challenge the status quo.
