Want to know when the deleveaging is done? Watch volatility (via Economics of Contempt):

Volatlity is important because it dramatically affects banks and hedge funds’ value-at-risk (VaR). VaR estimates the maximum a bank or hedge fund can expect to lose over a specific time period at a given confidence interval. VaR is the primary tool of risk management. Low volatility leads to low VaR, and high volatility leads to high VaR.

Banks and hedge funds’ leverage ratios are generally tied to VaR—the lower an institution’s VaR, the more it can lever up. More importantly for right now, the higher an institution’s VaR, the less leverage it can use.

VaR is based on quantitative models developed to reduce risk. They work great in a low volatility world. In a high volatility world? Not so much…