Repo

Banks have to keep a proper balance between cash on hand and demand for loans. Banks make money by making loans and thus they lose money when they hold cash. They have to hold ten percent and this can be in cash or overnight in the fed and this is where repurchase agreements (repo's) come in play. These repos are ways the banks use to switch from cash to securities. The current overnight repo rate is 5%. Banks pay their depositors less than one percent and use any extra cash to overnight at 5%. It is a guaranteed profit with no risk. As interest rates have risen people have been moving their savings from the banks to money markets (MM) and there has been a slow drain on bank deposits. This has adversely effected a few large banks and this week Biden said, "Americans can rest assured that our banking system is safe". This has caused some people to worry.