noun General Slang

Repo haircut

· noun · finance

The discount taken off collateral value in a repo trade.

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Definitions

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When you borrow cash in a repo and post bonds as collateral, the lender doesn't give you a hundred cents on the dollar — they shave a few percent off to protect themselves if the bonds drop or you default. Treasuries get a tiny haircut, junk gets a fat one. Haircuts widened violently in 2008 and that, more than anything, killed Bear and Lehman.

“Once dealers pushed the haircut on Lehman's collateral to 20 percent, the funding death-spiral was on.”
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Repo haircut In A Sentence

Once dealers pushed the haircut on Lehman's collateral to 20 percent, the funding death-spiral was on.

Origin & Usage

Money-market jargon; the 2008 crisis literature (Gorton, Bernanke) made the term mainstream.

Variants haircut
Tags #finance#wall-street#repo#funding

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