Securities losses and the bank collateral channel of monetary transmission

Mariassunta Giannetti, Martina Jasova, Caterina Mendicino and Dominik Supera

No 3209, Working Paper Series from European Central Bank

Abstract: We show that losses on banks’ securities portfolios matter for the transmission mechanism of monetary policy even in the absence of financial stability concerns. When banks experience losses in their pledgeable securities, their ability to tap liquidity through the interbank market is impaired, and they subsequently reduce illiquid corporate lending, regardless of whether the securities were recorded at market or historical value. These effects are less pronounced for banks with abundant collateral and reserves and for banks that receive liquidity through their group’s internal capital market. Our results highlight a collateral channel in the bank-based transmission of monetary policy. JEL Classification: G21, E43, E52, E58

Keywords: banking groups; foreign banks; interbank market; monetary policy tightening; securities losses (search for similar items in EconPapers)
Date: 2026-03
Note: 1774743
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20263209

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