Repo haircut
The difference between the market value of the securities transferred and the cash received: a buffer against a fall in the value of the collateral.
How to read the number
The size of the haircut is a direct statement of how risky the collateral is considered: minimal on government paper, noticeable on illiquid names.
When the metric lies
Haircuts are revised during market stress, which is the moment when topping up is hardest. Planning from calm-period values understates how much cash will be needed.
Also known as: haircut on collateral, collateral discount