An assessment of the potential impact of a model's errors on the institution, expressed as a tier that drives the depth of development standards, documentation, validation, and ongoing monitoring applied to the model.
In practiceSR 11-7 requires banks to manage model risk in proportion to its significance. Institutions therefore operate a materiality or tiering framework that scores each model on factors such as financial exposure, customer impact, regulatory salience, complexity, and reliance on the output. Higher-tier models receive more intensive independent validation, more frequent re-performance, board-level reporting, and tighter change control. Materiality is reassessed when use, scope, or environment changes, not just at initial onboarding.
An interest-rate risk model used to set hedging strategy across the trading book is tiered as high materiality and receives annual full re-validation, while a marketing propensity model is tiered low and receives a lighter periodic review.
This definition is maintained by Moweb partners and used in live client engagements. For how Materiality applies to your estate, or to challenge a working definition, speak to a partner.