8.2.4.2 Haircut

Haircuts are applied to high quality liquid assets in order to determine the stock of high quality liquid assets. This assumption does not affect the cash flows. Haircuts are allowed to be specified in percentage terms only. The haircut percentage specified will be applied to all assets with the dimensional attributes specified in order to calculate the stock of high quality liquid assets for the purpose of computing the Liquidity Coverage Ratio (LCR).

Refer section Defining a New Business Assumption, for information on the steps involved in specifying this assumption.

Table 7-33 Value Change – Haircut

Business Assumption
Product Type	Asset Level	Haircut
Cash	Level 1	0%
Covered bond	Level 1	0%
Covered bond	Level 2A	15%
Common Equity	Level 2B	50%

The assumption stores these haircuts at the account level granularity for further use while calculating the stock of HQLA for the purpose of LCR computation. The application then computes the haircut adjusted values of assets for inclusion in the stock of HQLA as follows:

Table 7-34 Adjusted Market Value – Haircut

Product Type	Asset Level	Haircut	Market Value	Haircut Adjusted Market Value
Cash	Level 1	0%	3000000	3000000 [=30000000*(1-0%)]
Covered bond	Level 1	0%	220000	187000 [=220000*(1-15%)]
Covered bond	Level 2A	15%	550000	412500 [=550000*(1-25%)]
Common Equity	Level 2B	50%	110000	55000 [=110000*(1-50%)]