Unpacking repo haircuts and their implications for leverage

Felix Hermes, Maik Schmeling and Andreas Schrimpf

No 117, BIS Bulletins from Bank for International Settlements

Abstract: Haircuts vary with repo trading motives, notably whether market participants primarily seek to raise cash or gain access to a specific security. Haircuts tend to increase with repo maturity and are lower for less volatile collateral assets. Benchmark sovereign bonds are often associated with subdued haircuts. Zero-haircut borrowing is common in hedge fund repo activity, with the largest hedge funds benefiting from the lowest haircuts, enabling very high levels of leverage.

Pages: 8 pages
Date: 2025-12-02
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