Probability of default (PD) is a financial term describing the likelihood of a default over a particular time horizon. It provides an estimate of the likelihood that a borrower will be unable to meet its debt obligations.
|Basel Framework |
International regulatory standards for banks
|Pillar 1: Regulatory capital|
|Pillar 2: Supervisory review|
|Pillar 3: Market disclosure|
|Business and Economics Portal|
PD is used in a variety of credit analyses and risk management frameworks. Under Basel II, it is a key parameter used in the calculation of economic capital or regulatory capital for a banking institution.