In finance a repurchase agreement, more often known as repo for short, is a form of very short-term borrowing, typically involving government-backed securities, used by large financial institutions in need of short-term cash. In a repo, the borrowing institution sells securities to a lender, often just overnight, and buys them back later for a slightly higher price (known as a "haircut"). The size of the "haircut" is the borrowing cost of the short-term loan, and the securities effectively serve as the collateral for the loan.
Since the lender actually gets to hold the securities in hand, and the securities are typically of a type deemed extremely safe, repo is typically a very reliable and cheap way to quickly raise capital. However, in extreme situations, where doubts start to rise about the value of the securities to be repo'd, repo can fail or the haircut can rise to exorbitant heights, as happened in the 2008 financial crisis.