"Dealers typically use repo to fund both their cash Treasury positions and their lending to clients through Treasury reverse repos. Thus, the ability and willingness to engage in repo, which increases the size of dealers’ balance sheets, will affect their willingness to take on additional inventories and provide lending through reverse repos"
extract from below report (Footnote 14, PDF page 43, internal page number 37)
From the above, it seems banks raise cash through repos (get cash in exchange for some collateral) to finance treasury holdings and lend the cash clients against treasury securities. I am trying to understand how banks then use the funds raised with repos and got lost:
step 1: banks get cash in exchange for collateral
step 2: then with this cash they either buy US treasuries (This means they borrow against some collateral(potentially UST) and then buy UST?) or lend this cash to clients against US treasuries (This means they borrow against UST and then lend against UST at a higher rate?)