What Is the Importance Of “Institutionalizing” the ALLL?

Jan 21, 2015

Succession planning is undoubtedly a vital component of an institution's processes; however, often times institutions find that the original architect of their ALLL model is either no longer with the bank or his/her departure from the bank would pose a serious risk to operations. The more the process and the methodology can be "institutionalized" and readily transferable to other employees in the event of an exit, the more prepared the institution will be, and in all likelihood, the calculation will be more transparent to examiners and other outside parties.


Video Transcript:

One of the things we find from talking to our client base and banks nationwide is that it is important to institutionalize the process of the ALLL calculation. It is common to see complex spreadsheet models that have been built over time, and often the architect of the original model is no longer with the institution and the model has been passed down over time.

The risks there are fairly obvious: the person who is using the model today may not have a complete understanding of all the functionality; therefore there is an embedded error that may be harder to pick up. Beyond that, as people move to different roles or companies or retire, you do not want the next person coming in to be starting from scratch. So the more that the process and the methodology can be institutionalized so to speak, the better off everyone will be. The calculation will also be more transparent and error-free.