The Office of the Comptroller of the Currency has extended its risk-based examination procedures to include reviews of a bank's loan-loss reserves.

Although reserves against potential loan losses typically are considered protection against credit risk, the Comptroller's Office told its examiners this week that their reviews should consider the compliance and reputation risks associated with allowances for loan and lease losses.

Compliance risk occurs if institutions misstate their reserves, which could lead to a lower CAMEL rating or even a fine. Reputation risk occurs because an inaccurate reserve figure could subject the bank to criticism from market analysts, resulting in a lower stock price.

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