Adding Objectivity to Qualitative Adjustments
While qualitative factors are indeed subjective by nature, this does not mean that the institution’s processes for documenting and justifying these adjustments should be absent of objectivity. Rather, examiners call for underlying documentation and support to defend the adjustments made in the qualitative and environmental portion of the ALLL calculation.
In order to bring objectivity to this subjective task, many institutions incorporate a qualitative scoring matrix to ensure directional consistency. Institutions also benefit from using the same sources from period to period to ensure adjustments are objective and do not vary from the use of disparate sources. What’s more, institutions can use documentation from their portfolio to cite areas of increased or decreased risk to justify their qualitative adjustments.
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ALLL Qualitative Factors: Justifying in Periods of Low Loss
ALLL Qualitative Factors: Justifying in Periods of Low Loss - Download the PDF