Since the borrowers could sell the collateral instead, technically they aren't depending on these loans and they could stop using the repo market. However, the

Since the borrowers could sell the collateral instead, technically they aren't depending on these loans and they could stop using the repo market. However, they would then 1) lose the yield on the bonds and 2) instead need to keep large amounts of money on some account and trust that the bank doesn't go bust. Bond holding is used as an alternative to deposits. The government also doesn't want the repo market to shut down, because that means everybody dumps their gov bonds, since they wouldn't need them as collateral anymore. The dollar amount of outstanding repo contracts is measured in trillions so this would imply a catastrophic increase in the cost of borrowing for the government.