That sounds like it's going in the right direction.
What's the Repo market? It's where:
An investor places its money with the custodian bank, which in turn lends it to another institution, and then assets are pledged as collateral for the loan.
Repos are used to increase leverage. They also usually have incredibly short terms, like one day, or even hours. As such, they are typically viewed as "cash".
In the past, US Treasuries were used as collateral. Obviously very, very safe.
In the last "x" number of years, almost any "asset" was used as collateral. Which increased risk. If the "asset" pledged as collateral become less valuable, and/or less liquid, more collateral had to be pledged or, the position had to be unwound. Either way, that put downward pressure on the value of the underlying "asset".
Add fear, too much risk and massive leverage and you get everyone running for the door to protect their money/portfolios at the same time. While you were watching your Mutual Funds & stocks dropping last year, virtually every asset was dropping like a rock at the same time. Including "assets" that were used as collateral for Repos.
Imagine you loan money to someone who pledges collateral to back up the loan. You view that loan as good as cash. Then their collateral loses value. You get nervous and either want to call the loan or get more collateral. At some point, you find out you can't call the loan as they can not repay and they can not post more collateral as they don't have it, or can't do it. You feel you have to cut your loses now, so you get out of the transaction.
Now imagine that happening with billions & billions of dollars. Now imagine one company going bankrupt causes another to go belly up, etc, etc,etc.
That deleveraging of all assets including repos, while a good thing that will help us get back to reality, can also be catastrophic as it's almost impossible to stop once panic sets in.
The consequences for the repo market are best highlighted by the plunge in dealers financing corporate securities. A common transaction during the boom involved investors lending out Treasuries and then using the pledged cash to borrow corporate securities. They made money on the difference between the higher rate for corporates than Treasuries. This daisy chain collapsed when investors lost faith in using corporates as collateral and the relationship between Treasuries and corporate securities changed sharply.
Standards for collateral used in repo remain much higher and traders say reforms for the repo market, which are still being discussed by dealers and the Fed, should focus on making sure that continues.
The reasons you should care are you want tighter regulations on the repo market and the more intelligent use of risk so the 2008 blowup has less chance of occurring again, and to understand to some extent, how much you risk you take in thinking the stock market will "come back" like it always has. "Come back" to "where & when"?
Read article at FT.com.
Repo, or Repurchase Agreement explained at Wikipedia.
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