Bank Regulation Affects Monetary Policy Transmission

Daniel L. Greenwald, John Krainer and Pascal Paul

FRBSF Economic Letter, 2026, vol. 2026, issue 30, 6

Abstract: How does monetary policy impact banks’ lending behavior when interest rate changes revalue their securities? Detailed supervisory data show that banks with larger losses on securities during the 2022–23 monetary policy tightening cycle extended less credit to firms. This spillover effect was especially strong for securities that were marked to market and not hedged, and for banks required to include unrealized losses in regulatory capital. These conditions lead to larger reductions in corporate debt and investment, increasing monetary policy’s impact on the economy.

Keywords: bank regulation; monetary policy; monetary policy transmission (search for similar items in EconPapers)
Date: 2026
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