A repurchase agreement (repo) is a short-term secured loan: one party sells securities to another and agrees to repurchase those securities later at a higher price. The securities serve as collateral. The difference between the securities’ initial price and their repurchase price is the interest paid on the loan, known as the repo rate. Holding cash is, tautologically, expense for banks. It doesn't pay interest. However, if banks decide they need to hold $XXX in excess reserves, and their net position is short of that self-defined number, they exit the repo market and hold treasuries and cash. This means, in short, they stop lending. When there are a lot of people with Treasuries who want to use them as collateral for cash, demand exceeds supply in this scenario. The repo rate rises sharply. Suddenly, $2-4trn USD gets 3-4x more expensive. **THAT** is when things collapse. " />