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

Author

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  • Marianna Blix Grimaldi
  • Fabienne Schneider
  • David Vestin

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.

Suggested Citation

  • Marianna Blix Grimaldi & Fabienne Schneider & David Vestin, 2026. "The Usage of Security Lending Facilities under Unconventional Monetary Policy: Evidence from Sweden," Staff Working Papers 26-9, Bank of Canada.
    • Handle: RePEc:bca:bocawp:26-9
    DOI: 10.34989/swp-2026-9
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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