Conference Agenda

We study the transmission of monetary policy through bank securities portfolios for the United States using granular supervisory data on bank securities, hedging positions, and corporate credit. We find that banks that experienced larger market value losses on their securities during the monetary tightening cycle in 2022 extended relatively less credit to firms. Such a spillover effect was stronger for (i) available-for-sale securities, (ii) unhedged securities, and (iii) banks that have to include unrealized gains and losses on their available-for-sale securities in their regulatory capital. A structural model, disciplined by our cross-sectional regression estimates, shows that policy rate transmission is more powerful if banks are required to adjust their regulatory capital for unrealized value changes of securities.