Borrowers' financial constraints and the transmission of monetary policy: Evidence from financial conglomerations

Arbeitspapier

Building on recent evidence concerning the functioning of internal capital markets in financial conglomerates, we conduct a novel test of the balance-sheet channel of monetary policy. Specifically, we investigate how the response of lending to monetary policy differs across small banks that are affiliated with the same bank holding company but operate in different geographical areas. These banks face similar constraints in accessing internal and external sources of funds, but have different pools of borrowers. Because they typically concentrate their lending with small local businesses, we can exploit cross-sectional differences in local economic indicators at the time of a policy shock to study whether the strength of borrowers' balance sheets affects the response of bank lending. We find evidence that the negative response of bank loan growth to a monetary contraction is significantly stronger when borrowers have weaker balance sheets.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 153

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Money Supply; Credit; Money Multipliers ; Insurance; Insurance Companies; Actuarial Studies
• Subject: monetary policy, balance sheet channel, financial conglomerates, internal capital markets ; Transmissionsmechanismus ; Verschuldungsrestriktion ; Konglomerat ; Finanzsektor ; Schätzung ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ashcraft, Adam B. ; Campello, Murillo
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/60640
• Last update: 10.03.2025, 11:43 AM CET