Turning debt into deleverage | Vanguard news | Vanguard
A text from Vanguard Investments Australia about current deleveraging process and the statistics, along with a few advice.
The interesting thing is that European banks appear to have more leverage than the ones in the US. That's why the pain now can be felt in Europe as hard as across the Atlantic.
In 2003 the leverage of US banking and brokerage firms included in the S&P500 index was 20 times so for every $5 of capital there was $95 debt to equal $100 in assets. In just five years the leverage ratio went up to 30 times - so there was only $3.32 equity in the $100 of assets. Those are the numbers for the US banks where you might think the situation would be most severe given it gave birth to the subprime mortgage mess. But some leading European banks' leverage ratio got to 50 times (so only $2 per $100 in assets).
A text from Vanguard Investments Australia about current deleveraging process and the statistics, along with a few advice.
The interesting thing is that European banks appear to have more leverage than the ones in the US. That's why the pain now can be felt in Europe as hard as across the Atlantic.
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