View source for Haircut

1. 

''Secured lending''. 

An amount deducted from the current market value of an asset used as collateral, to calculate the maximum amount of a loan secured against that asset.  


'''Example''' 

Market value of the asset = £100,000. 

Haircut = 2%. 

The maximum amount of the related secured loan would be:

= £100,000 LESS 2% 

= £98,000


2. 

The amount of a loss (or an expected loss) on asset, as a percentage of the total value of the asset.


'''Example'''
 
Debt = EUR 200bn.

Haircut =  50%.

Then: 

Loss of EUR 100bn (= 50% ).
 
Recovery of EUR 100bn.


3. 

A fee or commission, expressed as a percentage of the total value of the related transaction.


== See also ==
* [[Collateral]]
* [[Repurchase agreement]]
* [[Bilateral repurchase agreement]]
* [[Tri-party repurchase agreement]]