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

Author

Listed:
  • Blix Grimaldi, Marianna

    (Financial Stability Department, Central Bank of Sweden)

  • Schneider, Fabienne

    (Bank of Canada)

  • Vestin, David

    (Monetary Policy Department, Central Bank of Sweden)

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

  • Blix Grimaldi, Marianna & Schneider, Fabienne & Vestin, David, 2026. "The Usage of Security Lending Facilities under unconventional Monetary Policy: Evidence from Sweden," Working Paper Series 462, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0462
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    File URL: https://www.riksbank.se/globalassets/media/rapporter/working-papers/2026/no.-462-the-usage-of-security-lending-facilities-under-unconventional-monetary-policy-evidence-from-sweden.pdf
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    Keywords

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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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