Sharp increases in interest rates can reduce the market value of banks’ securities holdings and threaten financial stability. Using euro area data for 2022-2023, this column shows that such losses can also affect monetary policy transmission through a bank collateral channel: banks with larger losses on collateral-eligible securities obtained less interbank funding and cut lending to firms. This effect was only partially offset for domestic subsidiaries in banking groups. The results demonstrate the importance of collateral values in monetary policy transmission and also emphasise the need for further financial integration across borders.



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