toxic debt

Toxic debt refers to financial assets—such as loans or bonds—that have become highly risky and likely to default, meaning the borrower may not repay them. These debts lose their value and can threaten the financial stability of institutions holding them, because they result in significant losses. Toxic debt often arises during economic downturns or mismanagement, and when many such assets accumulate, they can cause larger financial crises by spreading instability across markets and banks.