The estimation of the allowance for loan and lease Losses has been a part of the financial institution's accounting processes for years, but it has taken on increased importance over the last several years.
Between increased regulatory scrutiny and the challenges of documenting and defending the allowance estimation to multiple constituencies including the regulators, external auditors and the board, many financial institutions find themselves overwhelmed with the process of estimating and documenting the ALLL on a monthly or quarterly basis.
The ALLL estimation is significant in that regulators are vigilant about ensuring that financial institutions have enough in their reserves, but the ALLL estimation is also significant in its impact on an institution's earnings and capital.
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