Haircut: Difference between revisions

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1.  
1. ''Secured lending''
 
''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.   
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'''  
'''Example 1'''  


Market value of the asset = £100,000.  
Market value of the asset = £100,000.  
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2.  
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.
The amount of a loss (or an expected loss) on asset, as a percentage of the total value of the asset.




'''Example'''
'''Example 2'''
   
   
Debt = EUR 200bn.
Asset total value = EUR 200bn.


Haircut =  50%.
Haircut =  50%.
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Recovery of EUR 100bn.
Recovery of EUR 100bn.
3.
A fee or commission, expressed as a percentage of the total value of the related transaction.




== See also ==
== See also ==
* [[Basel Committee on Banking Supervision]]  (BCBS)
* [[Bilateral repurchase agreement]]
* [[Collateral]]
* [[Collateral]]
* [[High Quality Liquid Assets]]
* [[International Organization of Securities Commissions]]  (IOSCO)
* [[Margin]]
* [[Repurchase agreement]]
* [[Repurchase agreement]]
* [[Bilateral repurchase agreement]]
* [[Tri-party repurchase agreement]]
* [[Tri-party repurchase agreement]]
== External link ==
[https://www.bis.org/bcbs/publ/d499.pdf Margin requirements for non-centrally cleared derivatives - BCBS and IOSCO]
[[Category:Accounting,_tax_and_regulation]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Cash_management]]
[[Category:Financial_products_and_markets]]
[[Category:Liquidity_management]]

Latest revision as of 20:37, 24 June 2022

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


External link

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