Non-bank growth amplifies QE but leaves rate transmission intact
Non-bank growth strengthens quantitative easing when firms favor bond finance, but barely changes rate transmission. A Bank of England (BoE) working paper published on October 23, 2026 finds that the source of non-bank expansion determines the effect.
Same rates, different QE effects
A simulated 25 basis point Bank Rate cut raises peak output about 0.03 percent and inflation 0.08 percentage points on impact, almost irrespective of non-bank credit share.
Corporate bond rates fall only 15 basis points.
A £100 billion quantitative easing (QE) purchase, equivalent to 3.6 percent of GDP, raises peak output 0.15 percent and inflation 0.45 percentage points with rates at their effective lower bound for eight quarters.
Firm-driven non-bank expansion increases these QE responses by 15.4 percent and 10.3 percent respectively; expansion through costlier bank finance leaves them largely unchanged.
Non-banks replacing government bonds with corporate bonds provide the dominant duration channel, lowering yields and supporting investment.
UK data anchor financial frictions
Nicolò Bandera, Kristina Bluwstein, Michael Kumhof, Mauricio Salgado-Moreno and Jacob Stevens estimate 54 parameters using Bayesian methods and 19 UK series from Q2 1997 to Q3 2025, treating 2020–21 as missing.
Their DSGE model links banks, non-banks and the central bank through deposits, bonds and reserves.
The baseline non-bank corporate credit share is 40 percent.
Alternative scenarios raise firms' bond preference or bank loan markups by 50 percent.
The authors' findings do not represent BoE policy.
Structure matters more than size
The authors find that disrupted wholesale deposits strengthen QE by forcing non-banks to spend the proceeds.
Raising reserves from 12 to 25 percent of annual GDP weakens QE but does not eliminate its effects.
The model abstracts from some crisis dynamics and requires changes for US and euro area applications.