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For example, Treasury bills (which are seen as fairly safe) might have a haircut of 1%, while for a stock option (which are seen as less safe) the haircut might be as high as 30%. ECB use of haircuts The European Central Bank (ECB) applies a haircut to all securities offered as collateral. The size of the haircut depends on the riskiness of the security offered as collateral. See the ECB Risk control framework LTCM and haircut fees LTCM was able to obtain practically next-to-zero haircuts, as it was considered safe by its lenders. This was likely due to LTCMÂ’s clout and the fact that no counterparty had a total picture of the extent of its operations REFERENCES |
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