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Banks' Loan Portfolio and the Monetary Transmission Mechanism

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  • Den Haan, Wouter
  • Sumner, Steven
  • Yamashiro, Guy

Abstract

This Paper compares the responses of bank loan components to a monetary tightening with the responses to negative output shocks. Real estate and consumer loans sharply decrease during a monetary tightening but not after a negative output shock. In contrast, C&I loans (and commercial paper) sharply decrease in response to output shocks, but not in response to a monetary tightening. These results are difficult to reconcile with a bank-lending channel of monetary transmission, in which the supply of commercial and industrial (C&I) loans is constrained. Hedging and bank capital regulation provide reasons why banks may want to substitute out of real estate and consumer loans, and into C&I loans during periods of high interest rates.

Suggested Citation

  • Den Haan, Wouter & Sumner, Steven & Yamashiro, Guy, 2004. "Banks' Loan Portfolio and the Monetary Transmission Mechanism," CEPR Discussion Papers 4725, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4725
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    More about this item

    Keywords

    bank capital regulation; hedging; interest rates;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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