Submitted by sevans on Mon, 11/17/2014 - 3:24pm

Layering is the inappropriate practice of recording in the ALLL more than one amount for the same estimated credit loss. When measuring and documenting estimated credit losses, institutions should take steps to prevent the layering of loan loss allowances. One situation in which layering inappropriately occurs is when an institution includes a loan in one group of loans, determines its best estimate of loss for that loan group (after taking into account all appropriate environmental factors, conditions, and events), and then includes the loan in another group, which receives an additional ALLL amount. Another example of inappropriate layering occurs when an allowance has been measured for a loan under FAS 114 after the loan has been individually evaluated for impairment and determined to be impaired, but the loan is then included in a group of loans with similar risk characteristics for which an ALLL is estimated under FAS 5. The allowance provided for a specific individually impaired loan under FAS 114 must not be supplemented by an additional allowance under FAS 5. (2001 Policy Statement, Appendix B; and NCUA’s 2002 IRPS, p. 37450).

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