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.

For example, if the market value of the asset were £100,000 and the haircut was 2%, the maximum amount of the related secured loan would be £98,000 (= £100,000 LESS 2%).

2.

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

For example in this context a 50% haircut on Greek debt of EUR 200bn means a loss of EUR 100bn (= 50%) and a 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