Financial Services Alert

The 4 federal banking agencies, acting jointly under the aegis of the FFIEC (and after having consulted with the SEC), issued a proposed policy statement (the "Proposed Statement") concerning the methodologies and documentation banks and thrifts ("financial institutions") should use in establishing and adjusting their allowance for loan and lease losses ("ALLL"). The Proposed Statement permits financial institutions, as a means of guarding against potential losses and meeting safety and soundness obligations, to use their judgment as well as objective criteria in determining when additions to or reductions from their ALLL are appropriate, provided that the criteria used by the financial institution in making the decision is documented thoroughly and supported by consistently applied methodology. The Proposed Statement, if adopted, would provide a counterbalance to the