What is a haircut in banking?

"Haircut" since has been extended to a number of other financial contexts, whenever it is desirable to show that some securities (typically debt securities) are being valued for some purpose at a discount. The European Central Bank applies a haircut to all securities offered as collateral.

What is a haircut on a loan?

A haircut refers to the lower-than-market value placed on an asset being used as collateral for a loan. The haircut is expressed as a percentage of the markdown between the two values. When they are used as collateral, securities are generally devalued, since a cushion is required by the lending parties in case the market value falls.

What is haircut in finance?

Haircut in finance refers to the reduction in the asset’s value that acts as collateral in a loan agreement. It is the difference between the loan amount and the collateralized asset. In the stock market, it refers to the gap between the purchase and selling price of financial instruments. Various factors affect the calculation of haircuts.