The allowance for loan and lease losses, 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 a bank can expect to collect.

References

Allowance for Loan and Lease Losses (ALLL) (OCC 2006-47, December 2006), Interagency Statement | News Release | Questions and Answers
Covers key concepts and requirements included under ALLL supervisory guidance and generally accepted accounting principles

Allowance for Loan and Lease Losses Methodologies and Documentation (OCC 2001-37, July 2001), Interagency Statement
Covers FFIEC policy regarding ALLL methodologies and documentation for banks and savings institutions

Loan Loss Allowance Practices (SEC/Banking Agencies Joint Letter to Financial Institutions), Press Release, Joint Interagency Statement
Describes efforts to provide guidance for methodologies, disclosures, and supporting documentation for loan loss allowances