Liquidity & Balance Sheet
Repurchase Agreements
Also known as Repos
A Repurchase Agreement (Repo) is a short-term collateralized loan structured as the sale of securities with an agreement to repurchase them at a higher price. Repos are the dominant marginal wholesale funding source for large US banks.
Formula
In a repo, a bank sells Treasuries or agency MBS for cash today and agrees to buy them back tomorrow (overnight) or in a few days (term repo) at a slightly higher price. The price difference implies an interest rate (the repo rate). Reverse repo is the same transaction from the cash lender's perspective.
Why it matters
Total US repo volume exceeds $5T per day. For banks, repos are the cheapest short-term funding available — the collateral pledge dramatically reduces credit risk. The September 2019 repo-rate spike forced the Federal Reserve to resume balance-sheet operations and is a reminder that repo markets can dislocate quickly.
How to interpret
Repo reliance varies enormously by bank type. Community banks may have zero repos. Custody and primary-dealer banks may run repo books in the hundreds of billions. As a funding source, repo is typically 5-15% of large-bank funding; above 25% signals heavy reliance on a market that can freeze.
Thresholds
| Range | Label | Interpretation |
|---|---|---|
| 0–5% | Light | Limited use; typical for community banks. |
| 5–15% | Moderate | Typical large-bank wholesale funding share. |
| 15–25% | Heavy | Concentrated reliance on repo markets. |
| > 25% | Concentrated | Vulnerable to repo market dislocation. |
Worked example
Frequently asked
Why is repo cheaper than unsecured borrowing?
Because the lender holds high-quality collateral (Treasuries, agency MBS) that can be liquidated if the borrower defaults. Default risk is reduced to the difference between the collateral's value and the loan amount (the haircut).
What happened in the September 2019 repo spike?
Cash demand outstripped reserve supply for a few days as corporate tax payments and Treasury settlement strained funding. Overnight repo rates jumped from ~2% to 10% before Federal Reserve intervention. The Federal Reserve subsequently resumed balance-sheet growth and stood up a standing repo facility.
Are repos the same as securities lending?
Closely related but distinct. Both transfer securities for cash; the legal structure differs. Securities lending typically allows the borrower to use the securities for short selling; repo is usually about funding.
Sources
- FFIEC Call Report Schedule RC, Line 14b
- OFR US Money Market Funds and Repo Markets Monitor
See Repos across 4,335 US banks
BankRegReports ranks every FDIC-insured institution by Repos, refreshed quarterly within 48 hours of FFIEC release.