Exposure At Default – EAD
In general EAD can be seen as an estimation of the extent to which a bank may be exposed to a counterparty in the event of, and at the time of, that counterparty’s default.
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.
EAD – along with loss given default (LGD) and probability of default (PD) – is used to calculate the credit risk capital of financial institutions.
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