In a Bank of England (BoE) working paper, researchers assess the impact of quantitative easing (QE) on the provisioning of liquidity and the pricing in the UK gilt repo market. They compare the behavior of banks that received reserves injections via QE operations to other similar banks in terms of the amounts lent and pricing.
Researchers 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. The 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.