What does “Basel Core Principles for Effective Banking Supervision (bcbs230)” state?

What does “Basel Core Principles for Effective Banking Supervision (bcbs230)” state?
A . Supervisors shall perform regular and independent validation and testing of the models.
B. Banks’ boards and senior management understand the limitations and certainties relating to the input of the models and the risk inherent to other banks.
C. The supervisor complies with standards on their use.
D. The supervisor assesses whether the model outputs appear reasonable as a reflection of the risks assumed.

View Answer

Answer: D

Explanation:

“Basel Core Principles for Effective Banking Supervision (bcbs230) state that “Where banks use models to measure components of risk, the supervisor determines that: banks comply with supervisory standards on their use, banks’ boards and senior management understand the limitations and uncertainties relating to the output of the models and the risk inherent in their use, they shall perform regular and independent validation and testing of the models and that the supervisor assesses whether the model outputs appear reasonable as a reflection of the risks assumed.”