Quantitative Easing Fails To Get Banks To Lend

Analysis from FT Alphaville. Here are the main ideas:

The Deputy Governor’s remarks on ‘quantitative easing’ (QE) suggest the Bank of England has abandoned any hopes it might have had that its asset purchases would lead to a revival in bank lending.

If QE is purely and explicitly aimed at flattening yields, it also raises certain questions for central bankers beyond those of the moral hazard of monetising debt. For instance, if yields (10-year gilt shown below) stop responding to government-bond buybacks, and rates start rising, what then?

The world’s central bankers, Charlie Bean included, will surely at that stage have to try some extra yield manipulation, or what FT Alphaville has dubbed Ueber-QE.

Today’s FT also notes that the Bank of England is considering a move already taken by Sweden’s Riksbank, of introducing negative interest rates on balanced banks hold with the central bank, to induce banks to finally lay out cash to borrowers (which has been liberally financed by the taxpayer, of course…)