What is the Repo Market? | Explained in 3 Minutes

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We break down what caused the repo market to surge in September 2019.

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TRADING FUNDAMENTALS
The repo (repurchase agreement) market is seen as the plumbing of the financial system and facilitates volume of around $1-2 trillion per day - it is one of the most important markets in the financial system. Recently, it has been causing big headlines in the financial news due to major issues its been experiencing. This has led the Federal Reserve to get involved and begin pumping money into the market once again. But the big question is... what is the repo market? Let's break it down in a simple way in this 3-minute explainer.

In this video, we explain one of the most important markets in the financial system, the repo market.

[diamondhands]

God bless you, I've spent 1 hour reading articles and understood NOTHING and here I understood what repo for a minute, OMG, such a relief

[networth]

1:39 The pawn shop example is genius! In order to successfully explain a complex issue, you have to offer an analogy which the learner is familiar with from past experience.

[eurobrowarriormonk]

Fairly good explanation. However sometimes the collateral used is " hypothcated ". Meaning it belongs to someone else that the financial institution holds it for. Then they take the borrowed money and make a big bet in the derivatives market.

[johnathanwetherill]

Thank God a video that explains it so easily . Great Job . Subscribed .

[kirstinstrand]

In other words, the REPO MARKET keeps the Derivative Market from BLOWING UP. Is this what you REALLY are trying to say?

[nonshatter]

This is the best explanation of this I have seen to date (and I've watched a number). Nice one.

[drivendreamskev]

Wonderful explanation. Simple and to the point. Loved it! Thank you good sir

[nicklasskaaning]

but what is the motives for nationalbanks or funds for doing it? which effects does it have on the economy?

[David-]

Very good video.
The section that was missing for me: you compared it to plumbing at the start, but I was waiting for you to return to the analogy, and tie it up. At the end of the video you said that it was vital for liquidity, but I don't understand why - and in particular I don't understand why very short term borrowing is vital for liquidity versus borrowing for longer periods.

[tuepham]

Thank you. You did a great job of explaining this topic !

[Algorerythm]

well that just solved my 4 hours of trying to find questions to an answer. subscribed. thank you.

[Snail_Nailz]

This is likely a dumb Q but:
Why would ‘bank B’ agree to this at all? Even if they need the cash due to liquidity issues..

How is it possible for them to turn borrowed cash into a large enough profit (repo rate + security buyback + profit) in 24-48hrs to make this worth the financial risk?

[WrvrUgoThrUR]

Came for the economics lesson, could’ve used about 3 more minutes of that beat @ 0:37 🔥...but I digress...continue....

[thomaspick]

This video describes what the repo market is. It needs links to further videos to describe what happened in 2008 and 2019.

[IamGirii]

Even a layman can understand what is repo by going through this explanation!!

[outbackeddie]

I still don't understand why a bank would need cash for one or two days. How does that help them? What do they need the cash for? Are they broke? I don't get it.

[jimwilberforce]

Yeah, so, what happens if the value of the security drops during that overnight period to below the amount borrowed. Like in 2019 the bond rates jumped from 5% to 10%. That's bad right?

[KRKbert]

According to the Federal Reserve Bank of NY open market operations document 2018, it refers to these repo loans as unsecured. So I don`t see the treasuries being given as collateral between banks for overnight loans.

[peters]

MMF Bank lends 1m in cash to REIT Bank in exchange for a 1.2m T-bill.
MMF Bank expects agreed repayment plus repo-rate interest 0.1m in a few days.
If REIT Bank can't pay up, MMF Bank sells the T-Bill on the open market, pocketing the .2m, called haircut money. If MMF Bank has trouble doing this there are a lot of knock-on effects, similar to a blocked sewer in a deluge.

[stevencq]

Perfectly explained, but in the recent months with the FED REPO operations does it means the FED is the one lending, or the one supervising the transactions?