DEFINITION of 'Bad Debt Reserve'

An account set aside by a company to account for and offset losses that arise as a result of defaults from futures loans. This figure may be calculated based on historical norms or other known information about the relative safety of the debt.

Also known as a "loss reserve".

BREAKING DOWN 'Bad Debt Reserve'

Bad debt reserves become alarming when they reach levels outside of historical norms or averages, either at the company level or the national level. For instance, there are many concerns today about China's high bad debt reserves at its banks, an aftereffect of many years of almost non-existent lending requirements.

RELATED TERMS
  1. Allowance For Bad Debt

    A valuation account used to estimate the portion of a bank's ...
  2. Loss Reserve

    Loss reserve is an estimate of an insurer’s liability from future ...
  3. Bad Debt

    A debt that is not collectible and therefore worthless to the ...
  4. Asset Valuation Reserve - AVR

    When capital is set aside to help a company address unexpected ...
  5. Net Debt

    A metric that shows a company's overall debt situation by netting ...
  6. Reserve Ratio

    The portion (expressed as a percent) of depositors' balances ...
Related Articles
  1. Investing

    Will Corporate Debt Drag Your Stock Down?

    Corporate debt can mean a leg up for firms, or the boot for investors. How to tell the difference.
  2. Personal Finance

    Sizing Up Debt

    Ever wonder if the different types of debt are good or bad? Read on and we'll tell you.
  3. Personal Finance

    Why Debt Isn’t Always a Bad Thing

    When managed properly, debt can be used to achieve a higher overall rate of return.
  4. Insights

    Why and When Do Countries Default?

    Countries can default on their debt. This happens when the government is either unable or unwilling to make good on its fiscal promises.
  5. Insights

    What the National Debt Means to You

    The U.S. deficit seems to grow every year. But how does it actually affect you?
  6. Financial Advisor

    The 4 Best Debt Reduction Services

    It can be tricky to find the best debt reduction services for your financial situation. These top 4 debt consolidation firms help make the process easier.
  7. Personal Finance

    Using Good Debt to Build Wealth

    While debt can be bad, when used the right way it can help build wealth.
  8. Insights

    How High Levels of Debt Could Impact the Economy

    Here's how a large accumulation of private debt could impact the economy and investments.
  9. Personal Finance

    Consolidating Debt: What If You Have Bad Credit?

    Getting a debt consolidation loan is more difficult when you have bad credit. But it could still help put you on the road to improving your credit score.
  10. Investing

    Debt Ratio

    The debt ratio divides a company’s total debt by its total assets to tell us how highly leveraged a company is—in other words, how much of its assets are financed by debt. The debt component ...
RELATED FAQS
  1. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Answer >>
  2. Why would the Federal Reserve change the reserve ratio?

    Understand the Federal Reserve's monetary policy and the tools it uses to change that monetary policy. Learn about the reserve ... Read Answer >>
Hot Definitions
  1. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  2. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  3. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  4. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  5. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  6. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
Trading Center