It may have been influenced also by demand factors, including the effects of expansionary fiscal and monetary policy measures and the pent-up demand after the spread of pandemic. In addition, the impact of these factors may appear with some lags. Identifying the factors in real time is an even more difficult task.
In response, our examiners continue to remind bankers that allowance levels should be reflective of loan portfolio quality, based on sound processes, and consistent with current supervisory guidance. We recently provided additional clarity to our examiners regarding existing interagency guidance on loan loss allowances that should be factored into current examinations and inspections of state member banks, bank holding companies, and their nonbank subsidiaries.