Exposure At Default - EAD

AAA

DEFINITION of 'Exposure At Default - EAD'

A total value that a bank is exposed to at the time of default. Each underlying exposure that a bank has is given an EAD value and is identified within the bank's internal system. Using the internal ratings board (IRB) approach, financial institutions will often use their own risk management default models to calculate their respective EAD systems.

INVESTOPEDIA EXPLAINS 'Exposure At Default - EAD'

Exposure at default - along with loss given default (LGD) and probability of default (PD) - is used to calculate the credit risk capital of financial institutions. The expected loss that will arise at default is often measured over one year. The calculation of EAD is done by multiplying each credit obligation by an appropriate percentage. Each percentage used coincides with the specifics of each respective credit obligation.

RELATED TERMS
  1. Capital

    1) Financial assets or the financial value of assets, such as ...
  2. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  3. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming ...
  4. Cross Default

    A provisions in a bond indenture or loan agreement that puts ...
  5. Default

    1. The failure to promptly pay interest or principal when due. ...
  6. Default Risk

    The event in which companies or individuals will be unable to ...
Related Articles
  1. What Is A Corporate Credit Rating?
    Investing Basics

    What Is A Corporate Credit Rating?

  2. Corporate Bonds: An Introduction To ...
    Bonds & Fixed Income

    Corporate Bonds: An Introduction To ...

  3. What Is The Bank For International Settlements?
    Personal Finance

    What Is The Bank For International Settlements?

  4. Alternatives To Business Bankruptcy
    Entrepreneurship

    Alternatives To Business Bankruptcy

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center