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FRM Part II · FRM Exam Part II · Credit Scoring and Rating

A bank's scorecard has an AUC of 0.80 on development data. Six months after deployment, the population stability index (PSI) of the score distribution is 0.32, while the Gini on recent matured accounts is 0.58 (AUC 0.79). Which action is most consistent with sound model risk practice?

Investigate the population shift and test PD calibration. The Gini of 0.58 matches an AUC of 0.79, so ranking power is intact, but a PSI of 0.32 signals a material change in the applicant population that can distort predicted default rates.

  1. ATake no action because AUC remains near 0.80, which proves the model is stable
  2. BInvestigate the population shift and its drivers, since a PSI that high signals a material change even though rank-ordering remains adequate, and check calibration of predicted PDsCorrect
  3. CImmediately replace the model because the Gini is below the AUC
  4. DRecalibrate only the cutoff and skip further analysis because PSI measures discriminatory power

Explanation

Gini = 2*AUC - 1 = 2(0.79) - 1 = 0.58, so discrimination is largely intact and the Gini is consistent with the AUC, not a problem. A PSI above about 0.25 indicates a significant population shift, which can harm calibration even if ranking holds. The right step is to investigate the shift and test PD calibration, not ignore it or replace the model hastily.

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