The Usage of Security Lending Facilities under Unconventional Monetary Policy: Evidence from Sweden

Marianna Blix Grimaldi, Fabienne Schneider and David Vestin

Staff Working Papers from Bank of Canada

Abstract: This paper examines the interaction between quantitative easing (QE) and the securities lending facility (SLF) using a detailed dataset on Riksbank QE purchases, Swedish DMO SLF transactions and OTC repo deals. A theoretical model further shows how excess demand for assets and search frictions shift the SLF from a backstop to a first-resort tool. Empirically and theoretically, we find that QE expansion is closely linked to higher SLF use. Narrowing spreads between SLF yields and market repo rates make the SLF yield a floor for secured lending, weakening ties to monetary policy benchmarks and potentially altering its transmission. QE announcements also increase SLF usage, raising moral hazard concerns. Theoretically, QE strengthens cash-borrowing dealers’ bargaining position and may reduce reliance on the repo market, with implications for market liquidity.

Keywords: Financial markets and funds management; Market functioning; Market structure; Financial system; Financial institutions and intermediation; Monetary policy; Monetary policy tools and implementation (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2026-03
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