Exposure At Default - EAD

What does 'Exposure At Default - EAD' mean

Exposure at default (EAD) is the 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.

RELATED TERMS
  1. Credit Rating

    An assessment of the creditworthiness 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 ...
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. Investing

    The 5 Biggest Oil Bankruptcies of All Time (CVX, OGXP3.SA)

    Learn about the five largest bankruptcies in the oil industry. With oil prices in a slump and a global oversupply of oil, more bankruptcies loom on the horizon.
  5. Sectors

    Are Low-Debt Oil Companies Your Best Friend Right Now? (TSO, NTI)

    Discover why falling oil prices are causing many oil companies to file for bankruptcy, and how low-debt oil companies and investors can benefit from falling oil prices.
  6. Economics

    The 2007-08 Financial Crisis In Review

    Subprime lenders began filing for bankruptcy in 2007 -- more than 25 during February and March, alone.
  7. Economics

    Lehman Brothers: The Largest Bankruptcy Filing Ever

    Lehman Brothers survived several crises, but the collapse of the U.S. housing market brought the company to its knees.
  8. Economics

    Why Enron Collapsed

    Enron’s collapse is a classic example of greed gone wrong.
  9. Stock Analysis

    The Top 5 Technology Penny Stocks for 2016 (QTM,AMKR)

    Discover why the technology sector is vital to investors, and learn more about five of the most promising technology penny stocks for investors in 2016.
  10. Entrepreneurship

    Why New Businesses Fail

    While it’s unclear exactly how often new businesses fail, many do.
RELATED FAQS
  1. Does working capital include stock?

    Discover what a company's working capital is and what it includes, how it is used, and what positive and negative figures ... Read Answer >>
  2. What are some alternatives a company can attempt prior to resorting to liquidation?

    Learn the different alternatives that a company may pursue prior to liquidation. All of these options have their advantages ... Read Answer >>
  3. Under what circumstances might a company decide to liquidate?

    Learn about the circumstances under which a company may decide to liquidate, and understand how assets are liquidated in ... Read Answer >>
  4. What happens to the shares of a company that has been liquidated?

    Learn what happens to a company's shares during Chapter 11 and Chapter 7 bankruptcy proceedings, and understand how much ... Read Answer >>
  5. What is the difference between compulsory and voluntary liquidation?

    Learn about the primary differences between voluntary liquidation and compulsory liquidation, two ways of selling off company ... Read Answer >>
  6. What can cause a merger or acquisition deal to fail?

    Mergers and acquisitions are resorted to when one or both companies involved have goals as diverse as seeking greater market ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center