Deleveraging

Posted in Finance, Accounting and Economics Terms, Total Reads: 563
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Definition: Deleveraging

Most firms borrow a huge sum of money for investing in their business during its inception and also through its operation.


However such practices increases the debt ratio as well as the risk associated with the firm. In order to reduce the level of risk firms often Delever i.e. pay off the debt that exists on the balance sheet. This process of reducing the financial leverage of a firm is known as deleveraging. It is usually done when the growth of operation of a company do not substantiate to the leverage ratio of the firm.


Financial, economic, policy and regulatory factors can also be attributed to deleveraging.


Example

European banks began the deleveraging process in May 2013 with respect to the various financial, economic and government policies

 

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