Haircut

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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.

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.


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.


See also