Monetary policy, state-dependent bank capital requirements and the role of non-bank financial intermediaries

Manuel Gloria and Chiara Punzo
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Manuel Gloria: Bank of England
Chiara Punzo: Bank of England

No 1556, Bank of England Staff Working Paper series from Bank of England

Abstract: We develop a DSGE model that incorporates state-dependent commercial bank capital requirements as a source of non-linearity. The presence of non-bank financial institutions (NBFI) amplifies the contractionary effects of monetary policy, primarily through the asset price channel. The amplification effect is strongest in the left tail of the GDP distribution and remains pronounced under zero lower bound conditions. The short-run vulnerabilities exposed by NBFIs contrast with their long-run benefits: a greater share of NBFI lending is associated with higher welfare.

Keywords: Non-bank financial institutions; financial frictions; bank capital; macroprudential policy; monetary policy; GDP-at-risk (search for similar items in EconPapers)
JEL-codes: E32 E58 G23 (search for similar items in EconPapers)
Pages: 45
Date: 2025-11-21
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:023278

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