The amount of capital provision (haircut) that a bank or financial institution makes when booking a specific transaction so that it gets a recognition of 100% of regulatory capital. This effectively implies that it has taken a “capital haircut“, implying that it would have less capital available to absorb or cover losses associated with other business on its books.

Capital haircut (also, regulatory capital haircut) is a “regulatory deduction”- so to speak. For example, at the time of issuing a security (an equity or hybrid security) by a regulated institution, regulators usually impose a haircut discount the amount of regulatory capital recognized by an amount (based on a percentage) commensurate with extent of its overall risk.

Capital haircut is a type of regulatory haircut.