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

Dudley Cooke

Working Papers from Banco de Portugal, Economics and Research Department

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.

JEL-codes: E32 E44 E52 G20 O16 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w202604

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