When the capital market is improving, the high returns brought by the highly leveraged model make people ignore the existence of high risks. When the capital market began to decline, the negative effect of leverage began to stand out, and the risk was rapidly amplified. For enterprises and institutions with excessive leverage, rising asset prices can make them easily get high returns, and once asset prices fall, the losses will be huge and exceed capital, which will soon lead to bankruptcy.
After the outbreak of the financial crisis, the risk of high leverage began to be recognized by more people, and enterprises and institutions began to consider "deleveraging" one after another, reducing debts by selling assets and gradually repaying debts. This process has caused the prices of most assets such as stocks, bonds and real estate to fall.
To sum up, "deleveraging" is a process in which a company or individual reduces the use of financial leverage. The trend of returning the original "borrowed" money by various means (or tools).
Extended data
The influence of deleveraging of financial institutions on China;
The deleveraging of financial products has little impact on China.
Due to the implementation of capital account control, most of China's foreign financial investment is in the form of central bank foreign exchange reserve investment. This kind of investment has always been cautious and conservative, and basically will not be involved in highly leveraged wealth management products. Even if there is a loss, it cannot be compared with the losses of other types of investors.
Secondly, "deleveraging of financial institutions" and "deleveraging of investors" have relatively little impact on China.
Baidu encyclopedia-leverage
Baidu encyclopedia-deleveraging