Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 462: The Usage of Security Lending Facilities under unconventional Monetary Policy: Evidence from Sweden

Marianna Blix Grimaldi (), Fabienne Schneider () and David Vestin ()
Additional contact information
Marianna Blix Grimaldi: Financial Stability Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Fabienne Schneider: Bank of Canada
David Vestin: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, 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.

Keywords: Security Lending Facilities; Quantitative Easing; Repo Market

JEL-codes: E52; E58; G21

Language: English

72 pages, February 1, 2026

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