Credit Exposure

AAA

DEFINITION of 'Credit Exposure'

The total amount of credit extended to a borrower by a lender. The magnitude of credit exposure indicates the extent to which the lender is exposed to the risk of loss in the event of the borrower's default. Credit exposure can be minimized through purchasing credit default swaps or other types of financial instruments.

INVESTOPEDIA EXPLAINS 'Credit Exposure'

For example, if a bank has made short-term and long-term loans totaling $100 million to company A, its credit exposure to company A is $100 million.


In general, a bank will seek to have greater credit exposure to its customers with the highest credit rating, and less exposure to clients with a lower credit rating. If a customer encounters unexpected financial problems, the bank may seek to reduce its credit exposure in order to mitigate the risk of loss arising from a potential default.

RELATED TERMS
  1. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  2. Default Probability

    The degree of likelihood that the borrower of a loan or debt ...
  3. Default Risk

    The event in which companies or individuals will be unable to ...
  4. Credit Default Swap - CDS

    A swap designed to transfer the credit exposure of fixed income ...
  5. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming ...
  6. Surrender Period

    The amount of time an investor must wait until he or she can ...
Related Articles
  1. Investing

    What happens to a company's stocks and bonds when it declares chapter 11 bankruptcy protection?

    Filing for chapter 11 bankruptcy protection simply means that a company is on the verge of bankruptcy, but believes that it can once again become successful if it is given an opportunity to reorganize ...
  2. Insurance

    Credit Default Swaps: What Happens In A Credit Event?

    The credit crisis of 2008 prompted important changes to the settlement of credit default swaps.
  3. Budgeting

    When Financial Crisis Strikes The Bank Of Mom And Dad

    If you really want your kids to learn to be financially responsible adults, it's time to stop giving them money.
  4. Credit & Loans

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  5. Mutual Funds & ETFs

    How much of my total assets should I be keeping in my money market account?

    Investing a portion of total assets in a cash position such as a money market account provides investors access to funds in the case of an emergency.
  6. Bonds & Fixed Income

    How does preferred stock differ from company issued bonds?

    Discover the primary differences between preferred stock and corporate bonds, two income-generating investment vehicles issued by certain companies.
  7. Bonds & Fixed Income

    What is the difference between yield to maturity and the yield to call?

    Determining various the various yields that callable bonds can provide investors is an important factor in the bond purchasing process.
  8. Investing Basics

    The Strange New World Of The Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  9. Bonds & Fixed Income

    How do I calculate yield to maturity of a zero coupon bond?

    Find out how to calculate the yield to maturity for a zero coupon bond, and see why this calculation is more simple than a bond with a coupon.
  10. Bonds & Fixed Income

    Why are bond yields calculated in terms of basis points?

    Find out why financial analysts and publications track and quote bond yields in basis points, or bps, rather than simply stating percentages.

You May Also Like

Hot Definitions
  1. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  2. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  3. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  4. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  5. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  6. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
Trading Center