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.

See also

• Basel Committee on Banking Supervision (BCBS)
• Bilateral repurchase agreement
• Collateral
• High Quality Liquid Assets
• International Organization of Securities Commissions (IOSCO)
• Margin
• Repurchase agreement
• Tri-party repurchase agreement

External link

Margin requirements for non-centrally cleared derivatives - BCBS and IOSCO