When you and I put our money in a bank, the Federal Deposit Insurance Corporation (FDIC) guarantees it against the failure of the bank: this default risk is covered. But there is no such insurance in the repo markets, so repo-market investors protect their cash by receiving collateral equivalent to the cash lent. If the borrower goes bust, the lender can still get the money back, so long as, and this is critical, the collateral doesn't lose value. What counts as high-quality collateral? Back in the early 2000s, it included such things as Treasury bills, of course. But increasingly, AAA-rated mortgage-debt securities began to be used as collateral, since T-bills were in short supply, which is how mortgages ended up in the repo markets.

Mark Blyth, Austerity, loc. 81