Economic Support during the COVID Crisis. Quantitative Easing and Lending Support Schemes in the UK

17 Pages Posted: 23 Apr 2021 Last revised: 16 Oct 2021

See all articles by Mahmoud Fatouh

Mahmoud Fatouh

Bank of England

Simone Giansante

University of Bath - School of Management

Steven Ongena

University of Zurich - Department of Banking and Finance; NTNU Business School; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Date Written: April 22, 2021

Abstract

We investigate how UK bank business lending responded to the simultaneous use of quantitative easing, leverage ratio capital requirements, and government COVID lending support schemes. We find no evidence that the Brexit wave increased lending to nonfinancial businesses, compared to the previous waves, except for QE-banks subject to the UK leverage ratio, suggesting that the ratio incentivised QE-banks to lend to businesses. The government schemes helped expand lending especially to SMEs post the COVID wave, indicating that complementing QE with other credit easing programmes can reinforce its impact on lending to the real economy. During COVID-stress, changes to the UK leverage ratio supported better market-making in securities markets, and additional QE liquidity boosted stronger repo market intermediation.

Keywords: Monetary policy, quantitative easing, bank lending

JEL Classification: E51, G21

Suggested Citation

Fatouh, Mahmoud and Giansante, Simone and Ongena, Steven R. G. and Ongena, Steven R. G., Economic Support during the COVID Crisis. Quantitative Easing and Lending Support Schemes in the UK (April 22, 2021). Swiss Finance Institute Research Paper No. 21-54, Available at SSRN: https://ssrn.com/abstract=3831967 or http://dx.doi.org/10.2139/ssrn.3831967

Mahmoud Fatouh

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Simone Giansante (Contact Author)

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

HOME PAGE: http://people.bath.ac.uk/sg473/index.html

Steven R. G. Ongena

NTNU Business School ( email )

Norway

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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