Default occurs where an institution considers an obligor unlikely to pay without recourse such as realising security, or where the obligor is more than 90 days past due on any material credit obligation; for retail exposures these conditions may be applied at facility level. Days past due rules state overdrafts commence on breach of an advised limit, an advised lower limit, or an unauthorised draw (where material), and credit cards from the minimum payment due date. Institutions must document consistent policies on counting days, re-ageing, extensions, renewals and netting; competent authorities set materiality thresholds.

Indications of unlikeliness include placing an exposure on non-accrual, recognising specific credit adjustments for significant post-origination deterioration, sale at a material credit-related loss, consenting to forbearance likely to diminish obligations, and bankruptcy filings or protection. Institutions using external data must adjust to achieve equivalence; exposures that no longer trigger default may be reclassified, with any subsequent trigger treated as a new default. EBA shall develop RTS on the threshold by 31 December 2014 and issue guidelines, updated by 10 July 2025 to encourage proactive debt restructuring and allow flexibility in defining diminished financial obligation; the Commission may adopt the RTS.