CA-14.2.1
The CBB will give its approval for the use of internal models to measure
(a) That the conventional bank licensee's risk management system is conceptually sound and is implemented with integrity;
(b) That the conventional bank licensee has, in the CBB's view, sufficient numbers of staff skilled in the use of sophisticated models not only in the trading area but also in the risk control, audit and the back office areas;
(c) That the conventional bank licensee's models have, in the CBB's judgement, a proven track record of reasonable accuracy in measuring risk. The CBB recognises that the use of internal models is, for most banks in Bahrain, a relatively new development and, therefore, it is difficult to establish a track record of reasonable accuracy. The CBB, therefore, will require a period of initial monitoring and live testing of a conventional bank licensee's internal model before it is used for supervisory capital purposes; and
(d) That the conventional bank licensee regularly conducts stress tests as outlined in Section CA-14.7 and conducts back-testing as described in Section CA-14.6.
January 2015