Question

Define the risk of ‘layering’ and how does it affect Loss-given default (LGD)?​

Answer 1

Loss given default (LGD) is the amount of money a bank or other financial institution loses when a borrower defaults on a loan, depicted as a percentage of total exposure at the time of default.The loss given default (LGD) is an important calculation for financial institutions projecting out their expected losses due to borrowers defaulting on loans. The expected loss of a given loan is calculated as the LGD multiplied by both the probability of default and the exposure at default.