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Reference.org
Exposure at default
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<p>Exposure at default or (EAD) is a parameter used in the calculation of <a href="/facts/Economic_capital/25nGBnlE">economic capital</a> or <a href="/facts/Regulatory_capital/WUoXKG0q">regulatory capital</a> under <a href="/facts/Basel_II/T4Sn0p1d">Basel II</a> for a banking institution. It can be defined as the gross exposure under a facility upon default of an obligor. </p><p>Outside of Basel II, the concept is sometimes known as Credit Exposure (CE). It represents the immediate loss that the lender would suffer if the borrower (counterparty) fully defaults on its debt. </p><p>The EAD is closely linked to the <a href="/facts/Expected_loss/l02qfrLm">expected loss</a>, which is defined as the product of the EAD, the <a href="/facts/Probability_of_default/tL7MH87q">probability of default (PD)</a> and the <a href="/facts/Loss_given_default/H7or47Ft">loss given default (LGD)</a>. </p>