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Quantitative Easing and the Functioning of the Gilts Repo Market

Author

Listed:
  • Mahmoud Fatouh

    (University of Essex; Bank of England)

  • Simone Giansante

    (University of Palermo)

  • Steven Ongena

    (University of Zurich; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))

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.

Suggested Citation

  • Mahmoud Fatouh & Simone Giansante & Steven Ongena, 2023. "Quantitative Easing and the Functioning of the Gilts Repo Market," Swiss Finance Institute Research Paper Series 23-82, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2382
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    More about this item

    Keywords

    Monetary policy; quantitative easing; gilt repo market; leverage ratio;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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