Economic support during the COVID crisis. Quantitative easing and lending support schemes in the UK

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.