Model review jobs are the equivalent of CDO structuring jobs circa 2006. Once, there were hardly any of them. Now, they’re everywhere.
Responsibility for the proliferation of model review or “model validation” jobs can be laid at the door of regulators. When it became apparent (following the financial crisis) that different banks were using different kinds of mathematical models to measure risk exposures, with different results, model validation was born. Regulatory bodies like the Basel Committee began requiring that banks assess the validity of their models and methodologies. Banks now have massive teams of quantitative model validators located within their risk functions, often in offshore locations like Poland, as a result.
While model validators are proliferating, however, model validation can also be seen as a bit of a career cul de sac. Most model validators are quants; they’d rather be working close to the action and supporting traders than sitting in Warsaw and checking models work properly. “Model validation means low pay and difficulty moving into the front office,” says one senior quant, summing it up.
Against this backdrop, the career perambulations of David Bai, a quant turned model validator turned head of risk, are inspiring.
A Princeton PhD, Bai started his career as a quant at Salomon Brothers in 1996. From there, he moved into market risk at Bear Stearns in NYC. Bai skipped out of Bear before it imploded and joined BNP Paribas in NYC, where he started along the model review furrow and rose to become head of rates model review. In 2010, Bai took his expertise to Morgan Stanley where he was variously, head of London model review, head of FX model review, head of rate model review, head of wealth management model review and… head of Comprehensive Capital Analysis and Review (CCAR) model review.
Now, however, Bai works in model review no longer. He’s escaped. He’s head of the entire risk function for an entirely new bank.
Model reviewers everywhere will wonder how this happened. The answer is that Bai is now working for Chinese bank CICC in Hong Kong. He’s given up London and New York City and he’s given up U.S. investment banks to make the move. He clearly thought it was worth it.