Collateral Haircut Calculation Approaches

Global Credit Data’s discussion paper examines the practical challenges of calculating collateral haircuts for specialized lending exposures under CRR3 and PRA frameworks. Using an illustrative aircraft finance example and GCD’s empirical LGD data, it shows how haircut outcomes depend on the selected reference value and workout scenario, especially where collateral sale proceeds are not directly observable. The paper compares alternative haircut approaches and explains how haircut assumptions affect LGD outcomes under both F-IRB and A-IRB.