Quantitative Easing and the Functioning of the Gilts Repo Market

We investigate weather UK quantitative easing (QE) enabled recipient banks to increase liquidity, improves banks’ incentives to intermediate, and reduces the cost of borrowing in the gilts repo market. Evidence is strong during stress times, when liquidity availability deteriorates significantly. When controlling for banks subject to the leverage ratio (LR) requirements, we find that while LR is reflected in the pricing of individual transactions, it does not lead to higher bank-level pricing or rationing of the amounts lent, even during stress times