Determinants of the Loan Loss Allowance: Some Cross‐Country Comparisons

This paper analyzes the determinants of banks' loan loss allowance for samples of U.S. banks and three non‐U.S. samples: a group of 21 countries, Canada, and Japan. The model includes fundamental (or nondiscretionary) determinants of the allowance, such as nonperforming loans, and discretionary determinants, such as income before the loan loss provision. The results suggest that the loan loss allowance is sensitive to preprovision income in almost all samples. However, the results also suggest that some variables thought to reflect fundamental factors in U.S. analysis, such as net charge‐offs, are not significant factors for non‐U.S. banks.