Allowance for Loan and Lease Losses (ALLL)

Allowance for Loan and Lease Losses (ALLL), originally referred to as the reserve for bad debts, is a valuation reserve established and maintained by charges against a bank’s operating income. It is an estimate of uncollectible amounts used to reduce the book value of loans and leases to the amount that a bank expects to collect.

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Allowance for Loan and Lease Losses (Comptroller’s Handbook, May 1998)
Addresses requirements for evaluating, reporting, and accounting considerations that affect allowances for loan and lease losses

References

AL = Advisory Letter
OCC=Bulletin

See also Accounting

Interagency Policy Statement on the Allowance for Loan and Lease Losses (OCC 2006-47, December 2006), Statement, FAQ
Covers key concepts and requirements for ALLL supervisory guidance and GAAP

Policy Statement on ALLL Methodologies and Documentation for Banks and Savings Institutions (OCC 2001-37, July 2001), Guidance (Federal Register, July 6, 2001)
Provides guidance on the design and implementation of ALLL methodologies and supporting documentation and

Risk Modeling, Model Validation (OCC 2000-16, May 2000)
Provides guidance to mitigate risks from reliance on improperly validated computer-based financial models

Joint Interagency Letter to Financial Institutions (July 12, 1999)
Addresses efforts to provide a consistent message on the allowance for loan losses

Joint Interagency Statement (November 24, 1998)
Addresses consistent application of loan loss accounting policy and the transparency of financial statements

Allowance for Loan and Lease Losses (AL 1997-8, August 1997)
Covers risks associated with trends and practices in allowance for loan and lease losses and reiterates OCC’s core guidance