Loss Given Default (LGD) is a key financial metric that represents the amount of loss a lender incurs when a borrower defaults on a loan, expressed as a percentage of the total exposure at default. This metric helps lenders and financial institutions assess the potential risk associated with lending by estimating how much they would lose in the event of a borrower's failure to repay. Understanding LGD is crucial for accurately calculating credit risk and determining capital reserves for potential losses.
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