Consistency In ALLL Methodology
In performing the ALLL calculation, institutions should ensure they are consistent in their methodology. Using different data sources from one period to the next can skew results and may draw criticism from examiners.
In the qualitative and environmental portion of the ALLL, directional consistency refers to making adjustments consistent with economic and environmental trends. If a change is substantiated by an economic indicator, unemployment rate for example, then the institution should then be consistent with that indicator moving forward. If the unemployment rate changes in future periods, the institution should ensure that the impact of this change is directionally consistent with the adjustments it made in prior periods.