Quantitative Easing and the Functioning of the Gilts Repo Market

Mahmoud Fatouh, Simone Giansante and Steven Ongena
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Mahmoud Fatouh: University of Essex; Bank of England
Simone Giansante: University of Palermo

No 23-82, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We assess the impact of quantitative easing (QE) on the provisioning of liquidity and the pricing in the UK gilt repo market. We compare the behaviour of banks that received reserves injections via QE operations to other similar banks in terms of the amounts lent and pricing. We also investigate whether leverage ratio capital requirements affected the amounts of liquidity supplied by broker-dealers and the spreads they charged. We find that QE interventions can improve liquidity provision, and that their size determines how this is attained. QE can also reduce the cost of borrowing in the repo market, unless it was associated with spikes in demand for liquidity. Our findings further indicate that the leverage ratio supports the provision of liquidity during stress, as it prompts banks to become less leveraged. However, the larger capital charge repo transactions attract under the leverage ratio requirement is reflected in their spreads.

Keywords: Monetary policy; quantitative easing; gilt repo market; leverage ratio (search for similar items in EconPapers)
JEL-codes: G10 G21 G23 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2023-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fmk and nep-mon
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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4002265 (application/pdf)

Related works:
Journal Article: Quantitative easing and the functioning of the gilt repo market (2025)
Working Paper: Quantitative easing and the functioning of the gilt repo market (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2382

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