We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Exposure at Default?

Malcolm Tatum
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Exposure at default, also known simply as EAD, is the total amount of loss that a lender is facing when a borrower defaults on a loan. The term can be used to apply to the degree of risk associated with individual loans that are written by an institution such as a bank or mortgage company, or refer to the collective risk that is represented by all the currently active loans issued by the institution. In many cases, the calculation of exposure at default is used by financial institutions to structure their risk management models and thus minimize the effect of that exposure as much as possible.

The process of calculating a cumulative exposure at default normally involves multiplying each of the existing credit obligations by a specific percentage that is relevant to the type of loan issued, and any other extenuating factors that may apply to each of the loans. In most cases, this type of calculation is prepared to cover a period of twelve consecutive months, usually as one calendar year. The results of the calculations will represent the total amount of exposure that is possible in the event of default and thus allows the institution to create and manage an ongoing risk management process. By maintaining workable strategies that help to mitigate the degree of risk, it is possible to increase the chances of the institution remaining financially viable even if multiple loans do end up in default during the course of that year.

Investors will look closely at the exposure at default that is inherent with a given financial institution. By assessing the risk involved in the way that the institution does business, it is much easier to determine if the investor is likely to earn an equitable return by investing funds into the operation. Should the investor feel that a given bank or finance company has a degree of exposure that is out of balance with the assets of the business, there is a good chance he or she will refrain from investing in that institution, and look for investments elsewhere.

While the calculation of exposure at default is usually designed to project the possible exposure over the next twelve months, many institutions re-evaluate the exposure several times a year. This is because additional factors may have come into existence that have a positive or negative impact on those projections. In order to make sure that changing circumstances do not undermine the financial integrity of the lender, periodically recalculating the exposure at default makes it possible to deal with potential threats to the institution before they can have an enduring effect.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By lynna8 — On Aug 20, 2010

my daughter's husband is threatening to default on the mortgage. it is in joint names. can he do this without my daughter's consent?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.