New Evidence on the Lending Channel - FEDERAL RESERVE BANK of NEW YORK

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New Evidence on the Lending Channel

September 2001 Number 136

JEL classification: E50, E51

Author: Adam B. Ashcraft

Do banks play a special role in the transmission mechanism of monetary policy? I 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, I 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 outflows 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.

Available only in PDF PDF

58 pages / 438 kb

For a published version of this report, see Adam B. Ashcraft, "New Evidence on the Landing Channel," Journal of Money, Credit, and Banking 38, no. 3 (April 2006): 751-76.

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