Date of Award


Document Type

Independent Study

Degree Name

Master of Business Administration (MBA)


A bank's estimated credit losses are reflected by its reserve for loan loss account, generally known as the Allowance for Loan and Lease Losses (ALLL). 1 In simple terms, the ALLL is an estimate of the value of loans that probably will not be collected. It has been noted that the estimation of credit loss is often the most difficult element in the preparation of a bank's financial statements. Part of the problem lies in the subjective nature of the loss estimate, but a greater difficulty arises from the conflicting demands of regulatory agencies and the accounting profession. The subject is not simply a mundane accounting issue; the accuracy and sufficiency of the loss reserve is a major factor in gauging the health and survivability of a bank. Unfortunately the terms accuracy and sufficiency appear to be mutually exclusive when assessing the conflicting demands of bank management, the accountants, and bank regulators

This project recounts the history and purpose of the ALLL account; examines the divergent objectives of the banking industry, the accounting profession, and the banking regulators; evaluates the conflicting guidance issued by the accounting profession and bank regulators; and analyzes financial data of American banks from 1992 through 2005 to assess whether the ALLL account is an accurate reflection of its intended purpose underGAAP