© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
In debt restructuring agreements, a haircut is a percentage reduction of the amount that will be repaid to creditors. For example, when Argentina defaulted on its bonds in 2001 it agreed restructuring terms with over 90 per cent of its creditors which involved haircuts of between 45 per cent and 75 per cent.
In March 2013 the term haircut was applied to a levy of about 10 per cent proposed by European leaders on deposits held in bank accounts in Cyprus. The levy intended to raise €5.8bn to help fund a €10bn financial bailout of the island nation. An FT columnist commented that rather than run even a small risk of an unwanted financial “haircut” in the future, the customers of Greek, Spanish, Portuguese or Italian banks might choose to get their money out now. Cyprus's parliament rejected the levy.