Valuation reserve against total leases or loans on the balance sheet, representing the amount thought to be adequate to cover estimated losses in the portfolio. This fund may consist of actual cash from the lessor or borrowed money. When a lease or loan is charged off, it is removed from the portfolio as an earning asset, and its book value is deducted from the reserve account for loan losses. Recoveries from the liquidation of collateral repossessed from the lessee are credited to the reserve account. The Tax Reform Act of 1986 disallowed the tax deduction of loan loss reserves held by banks with assets over $500 million.
