Exposure at Default (EAD)

Exposure at Default (EAD) is a financial term used to estimate the amount of money a bank or lender could lose if a borrower defaults on a loan or credit agreement. It represents the outstanding balance the lender is exposed to at the moment the borrower defaults. EAD considers all current balances and potential future draws or liabilities related to the loan. This measurement helps lenders assess risk and determine appropriate capital reserves to cover potential losses, ensuring financial stability and informed risk management.