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 1
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. Margin and collateral.
A deduction from the current market value of an asset used as collateral in any other transaction, to calculate the maximum amount of a transaction collateralised by that asset.
3.
Bank supervision - liquidity
An amount deducted from the market value of an asset counting towards a bank's High Quality Liquid Assets (HQLAs), to calculate the total HQLAs for regulatory purposes.
4.
A fee or commission, expressed as a percentage of the total value of the related transaction.
5.
The amount of a loss (or an expected loss) on asset, as a percentage of the total value of the asset.
Example 2
Asset total value = EUR 200bn.
Haircut = 50%.
Then:
Loss of EUR 100bn (= 50% ).
Recovery of EUR 100bn.
