What Is A Repo?

Patrick Curtis

Reviewed by

Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

A repo agreement is a contract between two parties, which says that one party will buy assets from the other, and the other will then repurchase them at a given point in time for slightly more. This is an easy way for a firm to use its assets as funding for money for more investments.

The firm lending the money is paid for accepting the risk by receiving slightly more money than they lent, similar to an interest payment.

During the height of the 2004-2007 financial boom, it is estimated that some firms were financing up to 25% of their balance sheet in extremely short term (overnight to a week) repo agreements, and as soon as their assets started to devalue they were unable to receive enough funding, hence the 'credit crunch'.

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Patrick Curtis

Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.