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Exposure at Default (EAD) Calculator

Estimate total exposure at default including drawn amounts and undrawn commitments using credit conversion factors.

Exposure Parameters

Input facility limits and usage logs

Revolving facilities > 1 year maturity

Formula: EAD & CCF

EAD = Drawn Balance + (Undrawn Commitment × CCF)

The Exposure at Default is the sum of what the borrower has already borrowed, plus a percentage of what they could borrow before defaulting. This percentage is the Credit Conversion Factor (CCF).

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Complete Guide to Exposure at Default (EAD)

EAD is one of the three critical components of the credit risk function (Basel II/III). It predicts how much money a bank will actually have lent out at the precise moment a borrower goes bankrupt.

Table of Contents

What is Undrawn Commitment?

Most loans are not fully funded upfront. Banks provide Credit Facilities (like a credit card or a corporate revolving line) with a maximum limit.

When a borrower gets into financial trouble, they typically start drawing down all available cash from their credit lines to stay afloat. Therefore, at the time of default, the balance is usually much higher than it is today.

Credit Conversion Factors (CCF) Explained

The CCF is a percentage estimate of how much of the currently undrawn limit will be drawn down before default occurs.

EAD = Drawn + (Undrawn × CCF)

  • 0% CCF: The bank assumes NONE of the remaining limit will be used. (Rare, only for unconditionally cancellable lines).
  • 100% CCF: The bank assumes the borrower will max out the limit completely. (Common for guarantees or lines maturing very soon).
  • 75% CCF: A standard assumption for most corporate credit lines.

EAD by Product Type

Revolving Credit

High EAD risk. Companies usually treat these as "emergency funds".

Term Loans

Low EAD risk (Undrawn = 0). Since the money is fully disbursed upfront, EAD is simply the outstanding principal.

Regulatory Approaches

Under Basel III, banks calculate EAD using either:

  • Standardized Approach (SA-CCR): Regulators prescribe fixed CCF percentages for every product type.
  • Internal Ratings Based (Foundation IRB): Banks must use regulator CCFs but accurate PD/LGD.
  • Advanced IRB: Banks can use their own historical data to estimate CCF.

Frequently Asked Questions

Common questions about EAD

Does EAD include interest?

Typically, yes. EAD should reflect the outstanding principal plus any accrued interest and fees at the time of default.

Can EAD exceed the Limit?

Technically yes, if the borrower exceeds their limit (overlimit) due to interest capitalization or fees, but usually models cap EAD at the Limit + 10% margin.

Why is CCF low for credit cards?

Banks have the right to freeze credit cards instantly upon a missed payment. This "unconditional cancellability" allows a lower CCF (often 0-20%) compared to committed corporate lines (75%).

What is "Wrong-Way Risk" in EAD?

This occurs when the borrower's exposure (EAD) increases as their credit quality decreases. Example: A derivative where you are owed money by a counterparty whose stock you hold as collateral.

How does Netting affect EAD?

For derivatives, EAD is calculated on a "Net" basis if a valid Master Netting Agreement (ISDA) exists. This drastically reduces exposure compared to Gross EAD.

What happens to EAD after default?

After default strategies kick in, EAD becomes the "Outstanding Balance" and calculation stops. The focus shifts to LGD (Recovery).

Is EAD updated daily?

For trading (derivatives) books, yes. For banking (loan) books, usually monthly or when a drawdown event occurs.

Summary

The Exposure at Default (EAD) Calculator applies Basel II/III logic to estimate credit exposure.

It accounts for the risk of borrowers drawing down committed lines prior to default.

Use this tool to calculate Risk Weighted Assets (RWA) and Regulatory Capital requirements.

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Exposure at Default (EAD) Calculator

Estimate total exposure at default including drawn amounts and undrawn commitments using credit conversion factors.

How to use Exposure at Default (EAD) Calculator

Step-by-step guide to using the Exposure at Default (EAD) Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Exposure at Default (EAD) Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Exposure at Default (EAD) Calculator is designed to be user-friendly and provide instant calculations.

Is the Exposure at Default (EAD) Calculator free to use?

Yes, the Exposure at Default (EAD) Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Exposure at Default (EAD) Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Exposure at Default (EAD) Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.