Lets start with the definition of financial leverage,  which is simply a fancy expression that says you borrow funds against your existing assets to invest. Essentially you load up your company with debt because presumably you know a great way to make money and easily pay back the loan in years to come. So your proceeds from financial leverage better earn a greater rate of return than the cost of interest.

Leverage allows greater potential returns to the investor because it allows for an increase in the size of the investment. On the other hand, the potential for loss is also greater because if the investment becomes worthless, the loan principal and all accrued interest on the loan still need to be repaid.

Deleveraging is then simply the reduction of debt, in the context of the crisis, it is associated with rapid repayment of existing deb. Of course that implies that banks can no longer use these funds to make new loans… Here are example of the leverage ratios (assets/capital).

From David Greenlaw, Jan Hatzius, Anil K Kashyap, Hyun Song Shin