LOSS GIVEN DEFAULT - LGD
Actual amount of funds lost by a bank or financial institution when a borrower defaults on a loan. The loss given default is not always the same with the total loan amount. Academics suggested several methods for computing the loss given default. But the most often used method compare the total losses to the total possible exposure in the event of a loan default.
Most banks don't simply compute the LGD for a single loan. Instead, they reexamine their whole portfolio and assess LGD according to cumulative losses and exposure.
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