Leverage and Living will: Difference between pages

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1. <br />
1.  
Debt divided by Debt plus Equity = D / (D + E).<br />


<b>Example</b><br />
A contingency plan of how a financial institution could be wound up in the event of a collapse.
If the amounts of debt and equity were equal then leverage under this definition would be calculated as:<br />
1 / (1 + 1) = 50%.<br />


2. <br />
A requirement of the US Dodd-Frank financial reform law for financial institutions with more than $250 billion in assets.
The term 'leverage' is also used in a broader sense to refer to the amount of debt in a firm's financial structure.<br />
Used in this broader sense, 'leverage' means very much the same as 'gearing'. <br />
However, leverage and gearing are normally quantified by different calculations.<br />


3. <br />
To increase the level of gearing in an operational or financial structure.  The intention of leveraging is to improve expected net results.  <br />
A consequence of leveraging is normally to increase financial risk.<br />
Many financial disasters have been a consequence of leveraging up excessively in this way in earlier periods.


== See also ==
2.
* [[Debt]]
* [[Deleverage]]
* [[Gearing]]
* [[Leverage ratio]]


A set of instructions which specifies what actions are to be taken if a person becomes unable to act due to illness or incapacity.


===Other links===
''Also known as an advance decision.''
[http://www.treasurers.org/node/8012 Masterclass: Measuring financial risk, The Treasurer, July 2012]


[[Category:Corporate_finance]]
[[Category:Regulation_and_Law]]

Revision as of 18:22, 8 October 2013

1.

A contingency plan of how a financial institution could be wound up in the event of a collapse.

A requirement of the US Dodd-Frank financial reform law for financial institutions with more than $250 billion in assets.


2.

A set of instructions which specifies what actions are to be taken if a person becomes unable to act due to illness or incapacity.

Also known as an advance decision.

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