Why Central Banks Care About Collateral Haircuts

Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates · Aug 26, 2026 · 7m · transcript

Central banks don't just set interest rates — they also decide how much of a discount, or haircut, to apply when banks pledge assets as collateral. In this episode, Lucas and Luna break down why collateral haircuts matter, using the European Central Bank's treatment of Greek government bonds as a concrete example. They explain how a haircut is calculated, why central banks impose them, and how changes in haircut policy can send ripples through funding markets. The conversation also touches on the trade-off between safety and liquidity, and why haircuts become a hidden tool in times…