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

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.