Federal funds purchases and security repurchase agreements are a type of short-term borrowing.
Federal funds are overnight borrowings by a depository institution to maintain its required reserve balance at the Federal Reserve. The interest rate at which such borrowings are done is called the federal funds rate.
A security repurchase agreement, also called a repo, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. Repurchase agreements are viewed as collateralized loans, with the difference between the sale price and the repurchase price of the security constituting the interest payment. Repurchase agreements (and reverse repurchase agreements) are often carried out by the Federal Reserve System in order to temporarily inject reserves into (or remove reserves from) the banking system and withdraw them when they are no longer needed (or replace them when the need returns). Government securities dealers use repurchase agreements to finance their inventories.
Because some sectors do not report federal funds purchases or sales separately from security repurchase agreements, it is not possible to show net purchases and sales of the two items individually. Both the gross asset and liabililty positions of institutional sectors are shown; that is, transactions between two institutions within the same sector are not netted. For depository institutions, repo and reverse repo transactions are included in the federal funds and security repurchase agreements instrument category, rather than in net interbank transactions. Due to the differences in the timing of recording sales and purchases and the short-term nature of many repos, the discrepancy for this instrument is often large.
A June 30, 2014 FEDS Note, "Repurchase Agreements in the Financial Accounts of the United States" by Elizabeth Holmquist and Josh Gallin, describes the construction of this instrument category in more detail. The note is availabe at www.federalreserve.gov/econresdata/notes/feds-notes/2014/repurchase-agreements-in-the-financial-accounts-of-the-united-states-20140630.html.