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The Role of Monetary Policy for the Valuation of Collateral in Bank-Firm Lending

Author

Listed:
  • Dudley Cooke

Abstract

This paper presents new evidence on the role of collateral in bank-firm lending and its interaction with monetary policy. Loans secured with collateral have lower spreads than unsecured loans and financial assets generate greater spread discounts than other collateral types, including real assets. The valuation of collateral is sensitive to monetary policy shocks. Contractionary policy shocks cause the spread discount on loans secured with real assets to rise by more than other collateral types. Contractionary policy shocks also cause the spread discount smaller firms receive on secured loans to fall. This monetary policy-contingent valuation of collateral puts smaller firms at a disadvantage because they lack real assets to pledge.

Suggested Citation

  • Dudley Cooke, 2026. "The Role of Monetary Policy for the Valuation of Collateral in Bank-Firm Lending," Working Papers w202604, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w202604
    as

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    File URL: https://www.bportugal.pt/sites/default/files/documents/2026-07/WP202604.pdf
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    References listed on IDEAS

    as
    1. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
    2. repec:oup:qjecon:v:136:y:2021:i:1:p:229-291. is not listed on IDEAS
    3. Christina D. Romer & David H. Romer, 2004. "A New Measure of Monetary Shocks: Derivation and Implications," American Economic Review, American Economic Association, vol. 94(4), pages 1055-1084, September.
    4. Altavilla, Carlo & Boucinha, Miguel & Bouscasse, Paul, 2022. "Supply or Demand: What Drives Fluctuations in the Bank Loan Market?," Working Paper Series 2646, European Central Bank.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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