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Title: Banks' Loan Portfolio and the Monetary Transmission Mechanism

Author(s): Wouter Den Haan, Steven Sumner and Guy Yamashiro

Publication Date: November 2004

Keyword(s): bank capital regulation, hedging and interest rates

Programme Area(s): International Macroeconomics

Abstract: This Paper compares the responses of bank loan components to a monetary tightening with the responses to negative output shocks. Real estate and consumer loans sharply decrease during a monetary tightening but not after a negative output shock. In contrast, C&I loans (and commercial paper) sharply decrease in response to output shocks, but not in response to a monetary tightening. These results are difficult to reconcile with a bank-lending channel of monetary transmission, in which the supply of commercial and industrial (C&I) loans is constrained. Hedging and bank capital regulation provide reasons why banks may want to substitute out of real estate and consumer loans, and into C&I loans during periods of high interest rates.

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Bibliographic Reference

Den Haan, W, Sumner, S and Yamashiro, G. 2004. 'Banks' Loan Portfolio and the Monetary Transmission Mechanism'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4725