Dwindling repo could spell disaster for the financial system.

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The Reverse Repo Facility and the Repo market are crucial overnight lending mechanisms operated by the Federal Open Market Committee. While repos involve banks selling US Treasuries to the Fed to obtain cash for short-term needs, reverse repos occur when banks buy Treasuries from the Fed, allowing them to generate returns on excess cash. The functioning of these facilities impacts liquidity in the financial system and plays a significant role in managing short-term obligations and interest rates.

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