A ‘repo’ refers to a repurchase agreement, which banks use to finance themselves on a short-term basis, typically overnight. In a repurchase agreement, one party agrees to lend a party cash in exchange for an asset, typically a government bond. The borrowing party then repurchases the asset for slightly more cash than they were lended. The repo market trades trillions in notional value daily.
Typically in the repo market, banks acquire collateralized short-term financing from non-bank financial institutions. Federally regulated banks in the United States need to meet daily cash reserve requirements; at the same time, they are profit maximizing, so are frequently using and lending out the cash that they have on hand such that they always meet the requirement and no more. To make sure they can meet those requirements, they reach out to non-bank financial institutions like pension funds and money market mutual funds. These funds typically have extremely large pools of capital, but their investors prevent them from investing in overly risky assets (you wouldn’t want to put your pension in penny stocks!). As a result, they engage in low-risk, overnight cash lending to banks and earn a small return. The bank lends the institution an asset to serve as collateral (often a Treasury bill) in exchange for cash with a promise to repurchase the collateral at a later date, hence “repo”.