What does curtailment mean in banking?

The process of how banks that have a lot of bad debt on their balance sheets handle it is called curtailment. When a bank has a large amount of bad debt, it may be forced to reduce the amount of money it lends to its customers to stay solvent. This is called curtailment.

What does curtailment mean in banking industry?

If you are a business or an individual who are dependent on credit to get through the month, the possibility of credit card or loan limits being reduced for low-payment situations should be of concern to you. If you are a consumer who takes out a mortgage or business loans the interest rates you are charged could also be impacted by the economic situation.

What is curtailment in banking?

What are the benefits of curtailment in banking?

Banks are required to keep a certain amount of capital on its books as a cushion against losses. If a bank becomes insolvent, there will be an insufficient amount of funds to cover losses. When this is the case, the bank is said to have a capital shortfall. The capital shortfall puts your money at risk. To prevent this, many banks will use what’s known as curtailment. Curtailment is a process that allows a bank to reduce its exposure to a particular asset class by

What does curtailment mean in a bank?

As a commercial lender, a bank may provide a loan to a business. If a business is unable to pay back the loan, the bank can put a limit on how much they will lend or even declare the loan in default. The bank can also reduce the amount of money they will loan to a business each month until the loan is paid off or the loan is written off.