Five months before the COVID-19 stock market crash, an overnight spike in lending rates in the United States prompts the Federal Reserve to conduct operations in the repo market.

On 20 February 2020, stock markets across the world suddenly crashed after growing instability due to the COVID-19 pandemic. The crash ended on 7 April 2020.

The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics led to the desire for central control of the monetary system in order to alleviate financial crises. Although an instrument of the U.S. government, the Federal Reserve System considers itself "an independent central bank because its monetary policy decisions do not have to be approved by the president or by anyone else in the executive or legislative branches of government, it does not receive funding appropriated by Congress, and the terms of the members of the board of governors span multiple presidential and congressional terms." Over the years, events such as the Great Depression in the 1930s and the Great Recession during the 2000s have led to the expansion of the roles and responsibilities of the Federal Reserve System.

A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of secured short-term borrowing, usually, though not always using government securities as collateral. A contracting party sells a security to a lender and, by agreement between the two parties, repurchases the security back shortly afterwards, at a slightly higher contracted price. The difference in the prices and the time interval between sale and repurchase creates an effective interest rate on the loan. The mirror transaction, a "reverse repurchase agreement," is a form of secured contracted lending in which a party buys a security along with a concurrent commitment to sell the security back in the future at a specified time and price. Because this form of funding is often used by dealers, the convention is to reference the dealer's position in a transaction with an end party. Central banks also use repo and reverse repo transactions to manage banking system reserves. When the Federal Reserve borrows funds to drain reserves, it can do so by selling a government security from its inventory with a commitment to buy it back in the future; it calls the transaction a reverse repo because the dealer counterparty to the Fed is lending money. Similarly, when the Federal Reserve wishes to add to banking reserves, it can buy a government security with a forward commitment to sell it back. It calls this transaction a repo because the Fed counterparty is borrowing money.