Berlin, Germany (Weltexpress). Financial experts are watching the so-called “repo market” with growing concern. For the sake of understanding, this is often compared to the blood flow in the human body: when it works well, no one cares. But when a vein is blocked, life-threatening conditions suddenly arise.
Developments on the “repo market” are being closely monitored by international financial experts, as this market serves as an early warning system for potential crises or even collapses on the financial markets. It’s like in the old days in a mine, where a canary sat in its cage as a primitive but effective early warning system for rising gas. If the bird fell dead from its perch, the risk of explosion was so great that the mine tunnel had to be evacuated immediately.
The repo market as the “canary” of the financial world
Today, the repo market fulfills the role of the “canary” in Western financial markets. And things are no longer running as they should, warns Finnish expert Professor Tuomas Malinen, who, based on his observations of the repo market, accurately predicted the financial crises in 2008 and then again in 2019.
To understand the importance of the repo market, imagine the global financial system as a huge, invisible network that functions like a cycle: money flows back and forth to keep everything running. At the center of this system is something that most people never notice—until it goes wrong: the so-called repo market. But what exactly is it? And why are experts so concerned again right now, at the end of 2025?
The repo market is a type of pawn loan
Repo is short for “repurchase agreement.” Imagine you are a large bank or investment fund and need money quickly for a day—perhaps to pay bills or make investments. Instead of taking out a normal loan, you borrow the money from another bank overnight. As collateral, you hand over something valuable, such as secure government bonds (like US Treasury bonds or German federal bonds). The next day, you buy back these bonds, but at a slightly higher price – that’s the interest you pay.
It’s like a pawn shop: you put your watch up as collateral for a quick loan and get it back the next day at a higher price. The repo market is huge – trillions are traded here every day. It ensures that banks always remain liquid, i.e., have enough cash to cope with their day-to-day business. Without it, the financial system would stall like a car without gas.
No wonder, then, that the repo market serves as an early warning system. If something goes wrong here – for example, if banks mistrust each other and suddenly demand higher interest rates than usual or stop lending money altogether – it signals bigger problems in the financial sector and the economy in general.
Right now, in December 2025, the canary in the US financial system is chirping louder again, Prof. Malinen, chief economist at GnS Economics in Finland, reported a few days ago in a newsletter to clients. According to the newsletter, interest rates for these overnight repo loans are rising again. For example, the Triparty General Collateral Rate, a measure of secure repos, is higher than the secure interest rate that the US Federal Reserve (Fed) pays banks to park money with it. This means that lenders such as funds are cautious and are demanding higher interest rates because they sense risks. That is why even major US banks that have direct access to the US Federal Reserve are currently avoiding the repo market and increasingly resorting to emergency loans from the Fed – a clear sign of growing mistrust in the repo market.
Memories of 2008: The great crisis and its lessons
Does that sound familiar? Yes, it is reminiscent of the financial crisis of 2008. Back then, everything exploded in the repo market. Bad real estate loans were bundled into packages and used as collateral. When it became clear that these packages could be worthless, the banks panicked. They refused to grant loans or demanded huge amounts of additional collateral. This led to a “run on repo” – a mass rush that even caused major banks such as Lehman Brothers to go bankrupt. The system froze, banks collapsed, millions lost their jobs, and governments pumped hundreds of billions of taxpayer dollars into the system to avert a major collapse.
In September 2019, there was another acute “repo crisis” or liquidity crunch in the US and global financial system, which lasted for many months. At the beginning of 2020, the situation worsened catastrophically. The World Health Organization (WHO) officially declared COVID-19 a pandemic on March 11, 2020. However, thanks to the WHO declaration, public attention was diverted from the highly dangerous banking crisis, and financial institutions were once again rescued with trillions (thousands of billions) of dollars in liquidity subsidies without public protest. Today, in December 2025, according to Prof. Malinen, there are again signs of stress reminiscent of 2019, but for the time being they are milder and more controlled.
The crisis of 2019/20
In September 2019, particularly on the 16th of the month, there was a serious liquidity shortage in the US banking system due to quarterly taxes and large Treasury sales (US Treasury bonds) by the Fed, causing bank reserves to shrink to just under $1.4 trillion at the beginning of 2020. The first few months of 2020 then saw global panic and a dash for cash, combined with mass sales of Treasuries and fears of recession.
Towards the end of 2019, repo rates peaked at up to ten percent, and daily repo operations from September 17 onwards amounted to up to $75 billion. At the same time, financial institutions sold US Treasury bills worth $60 billion per month to improve their liquidity. The major banks with direct access to the Fed (primary dealers) made use of the Fed’s emergency repos of up to $100 billion per day. Daily turnover in the repo market amounted to three to four trillion dollars at the end of 2019. In the first quarter, liquidity in the US repo market jumped to over $5 trillion against the backdrop of major government liquidity measures justified by the COVID-19 pandemic. This table shows how the Fed literally flooded the financial system with $500 billion in repos every day in March 2020.
Both periods (2008 and 2019/2020) show how the repo market acts as an “early warning system”: higher repo rates indicate growing caution among lenders, often due to liquidity drains from Treasury settlements or tax payments. In 2019, the sudden decline in reserves led to panic; similarly in 2025, where until recently the Fed was still sucking liquidity out of the system with its QT policy and “diluting” the reserves of financial institutions.
In all cases of stress on the repo market, the Fed responded with liquidity inflows—in 2019 with temporary repos, in 2020 with massive quantitative easing, and in 2025 with Treasury purchases to pump liquidity back into the system. However, this is no guarantee that a deeper crisis will be averted in the coming months. Experts such as Prof. Malinen are now warning of “growing tensions,” similar to the analyses of 2019, which pointed to hidden weaknesses in the banking system.
Unlike in 2019, when the Fed’s interventions were reactive, since December 1, 2025, the central bank has proactively stopped withdrawing liquidity through its QT policy and started buying US Treasury bonds to avoid an escalation. The repo market has also grown much larger (twelve trillion US dollars/day compared to three to four trillion in 2019), with more non-banks such as hedge funds dampening volatility. Furthermore, optimists argue that this time there is no external shock such as the pandemic. Therefore, they say, the current stress in 2025 is purely “financial” in nature and says nothing about the fundamental economic outlook. However, Professor Malinen disagrees, as he sees increasing signs of a rapidly approaching economic crisis beyond the repo market.
According to Malinen, the repo stress shows that large banks are in trouble, and with them the entire US economy. “It’s like a red flag that something in the system is about to break,” he says. The causes? Possibly hidden risks in the private credit industry or a general liquidity shortage. Malinen fears that without swift action, chaos looms, and there is no easy way out.
