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Monetary Transmission Through Bank Securities Portfolios

Author

Listed:
  • Daniel Greenwald
  • John Krainer
  • Pascal Paul

Abstract

We study the transmission of monetary policy through bank securities portfolios using granular supervisory data on U.S. bank securities, hedging positions, and corporate credit. Banks that experienced larger losses on their securities during the 2022-2023 monetary tightening cycle extended less credit to firms. This spillover effect was stronger for available-for-sale securities, unhedged securities, and banks that must include unrealized gains and losses in their regulatory capital. A structural model, disciplined by our cross-sectional regression estimates, shows that interest rate transmission is stronger the more banks are required to adjust their regulatory capital for unrealized value changes of securities.

Suggested Citation

  • Daniel Greenwald & John Krainer & Pascal Paul, 2024. "Monetary Transmission Through Bank Securities Portfolios," NBER Working Papers 32449, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32449
    Note: CF ME
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    Citations

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    Cited by:

    1. Marcin Czaplicki, 2024. "Transmisja polityki pieniężnej poprzez kanał bilansowy banków. Przypadek Stanów Zjednoczonych," Bank i Kredyt, Narodowy Bank Polski, vol. 55(1), pages 21-54.
    2. Matteo Crosignani & Saketh Prazad, 2024. "Extend-and-Pretend in the U.S. CRE Market," Staff Reports 1130, Federal Reserve Bank of New York.
    3. Raymond Kim, 2024. "Hedging securities and Silicon Valley Bank idiosyncrasies," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(4), pages 653-672, April.
    4. Kagerer, Benedikt & Pancaro, Cosimo & Reghezza, Alessio & De Vito, Antonio, 2025. "Hidden weaknesses: the role of unrealized losses in monetary policy transmission," Working Paper Series 3129, European Central Bank.
    5. Mark M. Spiegel, 2025. "The Bank Lending Channel Is Back," Working Paper Series 2025-04, Federal Reserve Bank of San Francisco.
    6. Herb, Patrick & Kim, Raymond, 2025. "How do community banks access liquidity during funding stress events?," Finance Research Letters, Elsevier, vol. 80(C).

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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