Or would you rather have banks unloading massive stacks of treasuries at market close daily to meet their cash needs, creating volatility in bond markets?
Repo lending means banks don’t have to unwind their positions daily due to a cash shortage, because they have other assets they can post as collateral for cash. It’s not a bad thing.
Why was the cash reserve regulation introduced? What problem did it address?
Why, if banks are not able to comply with this regulation without "unloading massive stacks of treasuries at market close daily", are they allowed to load up on "massive stacks of treasuries" flaunting the cash reserve regulation in the first place?
The goal of a bank is to make as much money as it can with it's assets. It's in the banks interest to loan out as much as it safely can while staying above the reserve requirements. If a bank were to dump it's assets to ensure it met reserve requirements it would likely sell at firesale prices which could drive down the price of those assets for the rest of the market. By taking a loan from the Fed and using those assets as collateral that scenario is avoided. It's also worth noting that these loans are not free, the Fed does charge interest.
So the bank avoids dipping below reserve requirements (and flooding the asset market) and the Fed earns a small amount of interest.
The cash reserve is just a collateral against the risk, needed to stabilize public trust they will not default at the slightest ill wind.