A methodology for allocating allowance for loan and lease losses (ALLL) under new regulatory environment

Yimin Yang (), Fang Du () and Weixin Zhou ()
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Yimin Yang: Protiviti Inc., 1290 6th Ave, New York, NY 10104, USA
Fang Du: RBS Americas, 1 Citizen Plaza, Providence, RI 02903, USA
Weixin Zhou: RBS Americas, 28 State Street, Boston, MA 02110, USA

Journal of Financial Engineering (JFE), 2014, vol. 01, issue 01, 1-19

Abstract: This paper establishes a simple framework for the calculation of expected loss-based Allowance for Loan and Lease Losses (ALLL) required by new regulations. It can be applied to both the expected lifetime loss and the expected loss over a short period, even when the data is less desirable. Its potential applications include loss benchmarking, loan growth strategy, sensitivity test, Comprehensive Capital Analysis and Review (CCAR) stress testing and scenario testing.

Keywords: ALLL; default time; peak default time; loss curve; expected loss; lifetime loss benchmarking (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1142/S2345768614500123

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