Firms do not look at the output of a model in isolation, nor should they. For example, firms should continue to augment formal risk models with more judgmental stress testing. Third, the imposition of rigid requirements on the risk models that firms are allowed to use would be a mistake. It would increase the likelihood that risk models could lead to herding.
The second objective of the SSM is to help breaking the negative feedback loops between sovereigns and banks, which were key features during the present crisis. This manifested itself in increasing debt levels of sovereigns that had to provide financial support to struggling banks as well as losses for banks from exposures to sovereigns under stress.