Exposure At Default - EAD


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.

BREAKING DOWN '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.

  1. Credit Rating

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

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