How Can You Make Your ALLL More Comprehensive?
Jan 21, 2015
This video examines ways that institutions can be more detailed or more specific in their calculations. Sageworks consultant, Tim McPeak, talks of the importance of supporting the assumptions you make within your calculation and documenting all aspects of the calculation.
It is a difficult question, but it depends where you start. There are a lot of ways to be more detailed or specific in your calculation. This could mean a more robust loss-rate calculation, or more depth in terms of your qualitative environmental factors. Overarching themes that we ultimately come back to include supporting the assumptions you make in the calculation and documenting those assumptions.
It is easier said than done, particularly with qualitative environmental factors and adjustments. Those are by definition subjective, since they are qualitative. The reality is that the more thought and support you can put into it defining these assumptions, the more comprehensive the ALLL will be.
There is also a risk of going overboard with this though, and it’s possible for an institution to make the calculation more complicated than it needs to be. In the end, we always encourage clients to go back and think through your assumptions, have a justification for why you are using them, and document the best you can.