New Evidence On The Lending Channel

Do banks play a special role in the transmission mechanism of monetary policy? Article discusses the use the presence of internal capital markets in bank holding companies to isolate plausibly exogenous variation in the financial constraints faced by subsidiary banks. In particular, It demonstrate that affiliated bank loan growth is less sensitive to changes in the federal funds rate than that of unaffiliated banks, and that these relatively unconstrained banks are better able to smooth insured deposit out flows by issuing uninsured debt. State loan growth also becomes less sensitive to changes in the federal funds rate as loan market share of affiliated banks increases, but state output growth is largely unaffected.

Provided by: Federal Reserve Bank of New York Topic: Software Date Added: Sep 2001 Format: PDF

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