haircut

Etymology

hair + cut

noun

1. The act of cutting of the hair, often done professionally by a barber, hair stylist, or beautician.
2. The style into which the hair is cut.
3. (law) In a bankruptcy proceeding, the proportional reduction in the debt that will be paid to each creditor, based on an evaluation of the total debt owed and the total assets of the debtor.
   And he needs to make sure that any American bank that was involved in loans to Asia, and now wants to share in the I.M.F. bailout, takes a haircut. And I'm not just talking about a trim. 1998-01-17, Thomas L. Friedman, “Haircut Time”, in The New York Times, →ISSN
   Its president, Nestor Kirchner, was expected to confirm overnight that about 75% of the country's bondholders had agreed to swap their old debt for new at a loss of up to 70 cents in the dollar—also a record and one that Mr Kirchner has called “the biggest haircut in history” for investors. 2005-03-04, Ashley Seager, “Argentina says debt default is over”, in The Guardian
   Something similar was happening at the same time in Greece. In the spring of 2012 Greece's public debt did, eventually, take a haircut, confirming that an unpayable debt will receive a haircut whatever the dogmas of European officials. 2016, Yanis Varoufakis, And the Weak Suffer What They Must?[…], Hachette UK
4. (finance) The difference between the value of a loan and the value of its collateral.
   Government securities having high credit rating such as Treasury bonds and Treasury bills are usually subjected to 1% to 10% haircut, while for more risky, volatile or illiquid securities, such as a stock option, the haircut might be as high as 30%. 2012, Samuel N. Cohen et al., editors, Stochastic Processes, Finance and Control[…], World Scientific, page 190

verb

1. To reduce the value assigned to an asset.
   But whereas in the past it has been possible for a brokerage house to credit a customer’s account for 100 percent of the value of a commodity, we have required that that value be haircutted significantly. 1981, Joint Agency Reports on Silver Markets: Hearing Before the Subcommittee on Conservation, Credit, and Rural Development of the Committee on Agriculture, House of Representatives, Ninety-Seventh Congress, First Session, Washington, D.C.: U.S. Government Printing Office, page 32
   That is because the future stream of income is discounted to present value at perhaps as much as two to three percentage points above the prime rate and then haircutted by as high as 33½%. 1983, Harold W. Gourgues, Jr., Financial Planning Handbook: A Portfolio of Strategies and Applications, New York Institute of Finance, page 249
   The CFTC also permits FCMs to accept non-cash, non-security assets, but these must be "haircutted"--to 80 percent of their value. 1984, A Review and Evaluation of Federal Margin Regulations, Board of Governors of the Federal Reserve System, page 83
   The ratio of these two numbers represents the ratio by which column one, the gross profits, needs to be "haircutted," to amortize an asset initially established at 17%, with 6% interest starting out at the same place and ending at the same place over the same period of time. 1995, Record, volume 20, Society of Actuaries, page 199
   DCC Credit Rating of First Priority CE Provider or Counterparty; or Cash/Cash Equivalent (which is not Haircutted) 2003, Code of Federal Regulations, title 12 (part 900 to end), Washington, D.C.: Office of the Federal Register; U.S. Government Printing Office, page 408
   The collateral value would then be haircutted by 140 percent, 40 EUR/140 percent= 28.6 EUR. 2006, Laurent Balthazar, From Basel 1 to Basel 3: The Integration of State-of-the-Art Risk Modeling in Banking Regulation, Palgrave Macmillan, page 62
   And we do take a lot of care in our discount window lending and our other lending to make sure that the collateral that we give is appropriately haircutted and the Federal Reserve is well-protected. 2012, What the Euro Crisis Means for Taxpayers and the U.S. Economy, Part II: Hearing Before the Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs of the Committee on Oversight and Government Reform, House of Representatives, One Hundred Twelfth Congress, First Session, Washington, D.C.: U.S. Government Printing Office, page 52
   Effectively a statement was made that ‘you are going to have to find the money for the banks yourselves. That meant a decision was taken that a deposit would be haircutted.’ 2015, John Theodore, Jonathan Theodore, Cyprus and the Financial Crisis: The Controversial Bailout and What It Means for the Eurozone, Palgrave Macmillan, page 73