Such a transaction entails modest risk.32 As I’ve mentioned, a certain amount of dispersion across markets is normal and to be expected, due to liquidity, credit and other types of risk premia. 33 Spreads have also declined considerably in recent months. This could be due to the market adapting to the changes I have described. However, the data indicate that spreads have become more variable, have increased to high values at times, and in the case of repo and foreign exchange swaps have become especially volatile around month-end, and, especially, quarter-end dates. The increase in spreads in the repo and FX swap markets relate to the confluence of two factors:34 constraints to intermediation ensuing from the leverage ratio pressures I mentioned earlier, combined with limited access to dollar money markets by some financial as well as nonfinancial institutions.35 Pressures to reduce balance sheet size at period-end dates affect domestic money market integration, and integration across different global money markets, just as they affect the link between unsecured markets and IOR that I discussed earlier. These pressures are made more acute by inelastic demand for wholesale dollar funding from some firms that hold large dollar loan and securities portfolios but lack access to dollar deposits or to direct funding from money market funds.36  Prognosis On the whole, these shifts in broad money market spreads do not pose a problem for monetary policy formulation or implementation.

Bank of England Staff Working Paper No. 624, available at https://www.bankofengland.co.uk/working-paper/2016/qe-the-story-so-far. The debate about the precise effects of QE continues; for two recent contributions by my MPC colleagues, see Vlieghe, J. (2018), “The yield curve and QE”, speech at Imperial College Business School available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/the-yield-curve-and-qe-speech-by-gertjanvlieghe.pdf, and Broadbent, B. (2018), “The history and future of QE”, speech at the Society of Professional Economists available at https://www.bankofengland.co.uk/speech/2018/ben-broadbent-society-of-professional-economists. 9 For more on the TFS see the information on the Bank’s website at https://www.bankofengland.co.uk/markets/quantitative-easing-andthe-asset-purchase-facility. The Bank also lent directly to banks via the Funding for Lending Scheme (FLS) in 2012, a scheme designed to incentivise banks to lend to the real economy at a time when bank lending growth had been persistently very weak, not least because of spillovers from the euro area crisis. But this was a fully collateralised scheme, classified as off balance sheet under a collateral swap arrangement. For more on the FLS see Churm, R. et al (2012), “The Funding for Lending Scheme”, Bank of England Quarterly Bulletin 2012Q4, available at https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2012/the-funding-for-lending-scheme.pdf. 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  10  in wholesale markets. The latter is typically at a shorter term than the former, so this activity exposes banks to funding liquidity risk. Banks need to be able to take on this risk to execute their economic function. But it remains a risk nonetheless. Under ordinary circumstances, banks should largely be able to self-insure against this risk; indeed, that is a core part of effective bank risk management.