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Bank Regulation Affects Monetary Policy Transmission

Author

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  • Daniel L. Greenwald
  • John Krainer
  • Pascal Paul

Abstract

How does monetary policy impact banks’ lending behavior when interest rate changes revalue their securities? Detailed supervisory data show that banks with larger losses on securities during the 2022–23 monetary policy tightening cycle extended less credit to firms. This spillover effect was especially strong for securities that were marked to market and not hedged, and for banks required to include unrealized losses in regulatory capital. These conditions lead to larger reductions in corporate debt and investment, increasing monetary policy’s impact on the economy.

Suggested Citation

  • Daniel L. Greenwald & John Krainer & Pascal Paul, 2026. "Bank Regulation Affects Monetary Policy Transmission," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2026(30), pages 1-6, October.
    • Handle: RePEc:fip:fedfel:103923
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