This scenario models the financial, regulatory, and reputational consequences of a systemic failure in AI model governance within the credit decisioning function of a large retail or wholesale bank. The triggering event is a supervisory finding — or public disclosure — that AI-driven credit scoring models have produced discriminatory outcomes or are materially unexplainable under current regulatory standards. The immediate impact is a supervisory direction to suspend or remediate the affected models, with secondary impacts flowing through capital, customer remediation, and operational risk channels.
The scenario is rated medium time horizon (1–3 years) because the enabling conditions — widespread AI adoption in credit, regulatory frameworks now in force, and supervisory examination programmes underway — make a triggering event probable within that window for institutions that have not achieved full AI model governance maturity. Institutions should treat this scenario as a stress test of their current model risk management programme against the ECB, PRA, and EBA explainability standards that are simultaneously in force.