Our bank has always posted DDA charge-offs and recoveries directly to income and expense accounts. Because of the joint guidance issued earlier this year regarding ODP programs, we have decided to set up a separate account for the allowance for DDA losses.

Does anyone have some guidance or sample formulas that they are using to calculate a reasonable allowance for DDA losses that they would be willing to share? I have some ideas, but I'm not sure what the examiners will be looking for.

We were examined earlier this year and they didn't say anything about this, but I don't want to press our luck and hope they won't say anything at the next exam. Of course, if you change anything, then the change will probably be subject to more scrutiny.

I didn't mean to ramble on, but any help that anyone can offer will be appreciated.

1) The requirement to charge DDA charge-offs against the ALLL is not new - it was a requirement long before the recent guidance "re-highlighted" the requirement. As such, you can be sure that the safety and soundness guys are little more in tune to the requirement.

2) You can do it very simply. Calculate a percentage based on historical losses and portfolio size - adjust for any changes in the risk environment. Not too terribly different from how you project loan losses.

Thank you for your reply. I know that this is not new, but in the past I've gotten the "we've always done it this way" answer. With the new joint guidance issued, we've been able to convince them it is time to change.

I was thinking that using a historical percentage would be appropriate. Just wanted some input from someone who had experience in this area.

Thanks again