Well, you need buyers for one. And those buyers need cash. (And where do they get the cash... the repo market) Banks don't want cash. Cash sucks in terms of va

Well, you need buyers for one. And those buyers need cash. (And where do they get the cash... the repo market) Banks don't want cash. Cash sucks in terms of value. It's liquid, but it is constantly losing value due to inflation. Assets typically appreciate in value, so it is in the best interest of banks to maximize assets and minimize cash. You trade liquidity for value/earning potential. (Just thinking about opening a certificate of deposit at a bank compared to a money market or savings account. Lower liquidity == Higher interest rate) The repo markets exists so that banks don't have to hold tons of cash. If it didn't, banks would need TONS of cash on hand for all of their transactions, and it would significantly devalue them.