Repo haircuts: Market practices and the impact of minimum requirements on leverage

•FSB proposed minimum haircuts for SFTs.•Current haircuts not fully in line with FSB minimum haircut framework.•Minimum haircuts can reduce leverage on repo.•Impact strongest for most leveraged institutions. We use transaction-level data on the euro area repo market to assess the calibration of the Financial Stability Board's (FSB) recommended minimum haircut framework and its impact on leverage in non-bank financial institutions. We find that market haircuts are currently not in line with the framework. Therefore, a market failure exists that needs to be addressed by regulation, such as the minimum haircut framework. In assessing its potential impact, we find that it would affect larger and more leveraged entities the most, indicating its capability to make a meaningful contribution to addressing risks from leverage in non-bank financial institutions.