Monetary policy transmission by securitising banks

This paper studies whether securitisation affects monetary policy transmission via banks. Using granular loan-level data from the euro area, we show that banks actively engaged in securitisation adjust credit supply more strongly in response to monetary policy shocks than a matched sample of non-securitising banks. This is because securitisation expands banks’ lending capacity, but by increasing reliance on investors whose required returns and risk appetite are more sensitive to monetary policy conditions. Following a monetary tightening, these investors demand higher compensation and reduce their exposure to securitised assets, leading securitising banks to contract lending more than other banks. Effects are stronger for loans more likely to be securitised — i.e., to safer borrowers with longer maturities — and are primarily driven by synthetic securitisations, which provide additional capital relief through Significant Risk Transfers. Firms exposed to securitising banks cannot fully substitute tighter loan supply through existing or new bank relationships. JEL Classification: G21, G23