Construct · 1 fields · 1 citations

haircut: a standalone construct

One name. One construct. A landmark on the map.

● anchor · single construct, one field Nearest construct by meaning·not indexed
haircut1 CONSTRUCTHaircutCOLLATERAL DISCOUNT

A single standalone construct; nearby constructs are located against it in the Collider. Tap a field for its definition, unit, and measures.

Finance / repo markets

The discount applied to collateral value

In finance a haircut is the percentage discount applied to the market value of an asset when it is pledged as collateral: a borrower posting securities worth 100 against a loan may receive only 90, the 10-point haircut cushioning the lender against price falls and keeping the borrower with "skin in the game." Gorton and Metrick's 2012 Securitized banking and the run on repo showed how sharply rising repo haircuts drained funding during the 2007–2008 crisis, in effect a bank run. The referent is a valuation discount on posted collateral, measured as a percentage of market value, and it sets how much financing a given asset can raise.[1]

Unit
The percentage discount applied to pledged collateral's value
Recovery means
Not applicable
Measured by
Expressed as the percentage markdown from market value required on posted collateral

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Nearby constructs

recourse2 fields · 2 citationsjingle · one word, two constructstranche1 fields · 1 citationsanchor · single construct, one fieldcollateral3 fields · 3 citationsjingle · one word, three constructs

References

  1. Gorton, G., & Metrick, A. (2012). Securitized banking and the run on repo. Journal of Financial Economics, 104(3), 425–451. https://doi.org/10.1016/j.jfineco.2011.03.016

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