Allowance for Loan and Lease Losses

The allowance for loan and lease losses is calculated by a financial institution at the end of each quarter or more often if it is justified by the institution's loan review process or an analysis of loan performance. ==Methodology==

The methodology that a financial institution uses to estimate its reserve is influenced by the size of the institution, organizational structure, business strategies, loan portfolio makeup, loan analysis and administration policies, and management information systems. The variability in how a financial institution can the reserve can lead to challenges in estimating the ALLL, inconsistencies in how it is calculated over time, or confusion when presenting the reserve to the financial institution's board or examiners. ==Common challenges==

Some of the general challenges that financial institutions face with regards to the ALLL estimation include the manual, time-intensive nature of the reserve estimation process each month or quarter; producing adequate documentation and disclosures; incorporating new accounting standards and regulations released by FASB and federal regulatory bodies, and increased scrutiny on the assumptions used to determine the ASC 450-20 and ASC 310-10-35 reserves. The Financial Accounting Standards Board (FASB) has announced plans to change the way banks account for the impairment of assets in the ALLL. The final ruling, the Current Expected Credit Losses (CECL) model, was released in June 2016. ==Notes==