The Targeted Review of Internal Models (TRIM) forms a part of the European Union's (EU) supervisory assessment program conducted through the European Central Bank (ECB). As part of this program, the ECB has in 2017 embarked on a series of onsite investigations covering more than 60 directly supervised banks. Their aim is to enforce compliance by internal models of banks with existing regulatory requirements and to reduce unwarranted variability in capital requirements for Pillar I approved internal models.
TRIM sets the supervisory expectations for modeling approaches such as the internal ratings based (IRB) method for credit risk, the internal model approach (IMA) for market risk, and the internal model method (IMM) for counterparty credit risk.
In recent years, we have observed global convergence of regulations on Model Risk Management (MRM). This framework has evolved across jurisdictions, starting with guidelines in the US and then spreading to Canada, the UK and the EU. TRIM is the latest chapter in this evolution.
In this report, we critically examine TRIM's structure based on three components - Model Development, Model Validation and Model Governance - which have emerged from various regulations and best practices.