{"id":222728,"date":"2025-04-24T13:21:44","date_gmt":"2025-04-24T17:21:44","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?post_type=glossary-terms&#038;p=222728"},"modified":"2025-04-24T15:47:36","modified_gmt":"2025-04-24T19:47:36","slug":"deleveraging","status":"publish","type":"glossary-terms","link":"https:\/\/www.interactivebrokers.com\/campus\/glossary-terms\/deleveraging\/","title":{"rendered":"Deleveraging"},"content":{"rendered":"\n<p><strong>Deleveraging<\/strong> is the process by which individuals, companies, or entire economies <strong>reduce their total debt levels<\/strong>, often by paying off loans, selling assets, or cutting expenditures. It typically occurs after a period of <strong>high borrowing<\/strong>, especially when the cost of debt becomes unsustainable due to rising interest rates, falling asset values, or declining income. Deleveraging aims to <strong>lower financial risk<\/strong> and restore balance sheets to more stable, manageable levels.<\/p>\n\n\n\n<p>In the corporate and financial sectors, deleveraging often follows economic crises or bubbles. For example, during the <strong>2008 financial crisis<\/strong>, many banks and households were forced to deleverage rapidly after asset prices collapsed and credit tightened. Companies may respond by <strong>selling off non-core business units<\/strong>, <strong>cutting dividends<\/strong>, or <strong>halting expansion plans<\/strong> to preserve cash and reduce leverage ratios like debt-to-equity.<\/p>\n\n\n\n<p>At the macroeconomic level, large-scale deleveraging can lead to <strong>slower economic growth<\/strong>, since reduced borrowing and spending dampen demand. However, once deleveraging is complete, it can lay the foundation for <strong>more sustainable economic recovery<\/strong>. Economists often distinguish between <strong>orderly deleveraging<\/strong>, where debts are reduced gradually, and <strong>disorderly deleveraging<\/strong>, which involves rapid selloffs and financial distress that can trigger recessions or deflationary pressures.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Deleveraging is the process by which individuals, companies, or entire economies reduce their total debt levels, often by paying off loans, selling assets, or cutting expenditures. 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