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. Default

    1. The failure to promptly pay interest or principal when due. ...
  4. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming ...
  5. Default Risk

    The event in which companies or individuals will be unable to ...
  6. Cross Default

    A provisions in a bond indenture or loan agreement that puts ...
RELATED FAQS
  1. What are some alternatives a company can attempt prior to resorting to liquidation?

    Some alternatives a company's owners can attempt prior to resorting to liquidation are selling the company, raising money ... Read Full Answer >>
  2. Under what circumstances might a company decide to liquidate?

    There are many reasons a company may decide to liquidate. A smaller company may decide to liquidate if one of the main owners ... Read Full Answer >>
  3. What happens to the shares of a company that has been liquidated?

    The fate of a liquidating company’s shares depends on the type of liquidation the company is undergoing. The most common ... Read Full Answer >>
  4. What is the difference between compulsory and voluntary liquidation?

    Liquidation is the process where a firm's assets and liabilities are terminated, realized and subsequently distributed. In ... Read Full Answer >>
  5. What can cause a merger or acquisition deal to fail?

    When two large companies announce plans to merge, or when the larger of the two acquires the smaller entity, the surviving ... Read Full Answer >>
  6. What happens when a corporation declares bankruptcy?

    When a corporation faces severe financial challenges that cause its inability to repay debt obligations, filing for protection ... Read Full Answer >>
Related Articles
  1. Investing Basics

    What Is A Corporate Credit Rating?

    Is the bond you're buying investment grade, or just junk? Find out how to check the score.
  2. Bonds & Fixed Income

    Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  3. Personal Finance

    What Is The Bank For International Settlements?

    Get the scoop on the structure and functions of the oldest global financial institution.
  4. Economics

    Oil Companies Near Bankruptcy

    With the resumed uncertainty in Europe surrounding Greece and the sudden bear market gripping China, the price of oil has once again slid under $50. While low oil prices may be welcomed by drivers ...
  5. Economics

    What Does Going Concern Mean?

    Going concern is a concept used in business and accounting to describe the fiscal health of a company.
  6. Fundamental Analysis

    Companies That Went Bankrupt From Innovation Lag

    Companies that don't keep up with market-changing innovations run the risk of going bankrupt. We look at some examples.
  7. Investing

    Will Shale Oil Companies Go Bankrupt?

    An overview of shale oil companies and the threats they face in the aftermath of the decline in crude oil prices.
  8. Personal Finance

    7 Bankrupt Companies That Came Back

    Bankruptcy is often the end of a company – until it isn't.
  9. Economics

    Understanding Subordinated Debt

    A loan or security that ranks below other loans or securities with regard to claims on assets or earnings.
  10. Stock Analysis

    Will American Airlines Fall Back To Earth In 2015?

    The airline industry enjoys blockbuster profits, and American Airlines Group has been a key beneficiary of the favorable trends that have lifted stocks.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!