Transparency in ALLL Methodology
Transparency represents one of the most important characteristics of a comprehensive allowance for loan and lease loss calculation. As the ALLL calculation process can be complex, it is vital that regulators are able to see the assumptions made throughout the process in order to properly assess its soundness.
In order to provide justification, each significant part of the calculation should contain comments explaining the rationale behind assumptions and be supported by extensive documentation. If the regulator cannot easily see the logic and supporting data behind the calculation, it will likely result in a longer and more time consuming exam.
Related Asset - Whitepaper:
Documenting the ALLL: What Examiners Expect
Documenting the ALLL: What Examiners Expect - Download the PDF