The monetary transmission mechanism: How bank capital, bank profits, and securitization influence loan behavior

This dissertation contributes to the bank lending channel (BLC) and bank capital channel (BKC) literature. The study seeks out if monetary policy's influence on loan behavior is affected by different bank capital levels and different bank profit levels. In addition, different asset sized banks are examined.;The first essay develops a theoretical bank model that highlights the interaction between bank capital, bank profits, and loan activity. An important contribution of this framework is the development of a bank capital multiplier used to determine loan supply. This bank capital multiplier can be applied to other microeconomic and macroeconomic models. The framework offers a loan portfolio analysis focused on net interest margins and risk-based capital requirements.;Two empirical essays explore bank capital and bank profits, separately, using the FDIC Historical Statistics on Banking. The use of this database brings a different perspective to the existing empirical literature since it is not commonly employed. In particular, the focus on bank profits in the analysis of the monetary transmission mechanism is rarely performed.;The last empirical essay focuses on different asset sized banks and develops controls for non-bank credit alternatives and credit standards. These controls seek to establish a better identification of the monetary effects on different bank loans.;The study uses two different autoregressive techniques. The first technique transforms the baseline linear model into a nonlinear model, which is then estimated using a Marquardt nonlinear least squares algorithm. The second model uses a lag of the dependent variable plus a two-step regression process, which seeks to reduce possible endogenous elements stemming from the way in which banks fund their loans that could be independent of federal funds. Banks are divided into panels for comparison.;One major finding of this dissertation is that commercial and industrial loans do not act in a manner predicted by the BLC and are more correlated with a bank's loan loss reserves. Another finding is that the presence of the mortgage securitization market may have a dilutive effect on monetary policy and could be pro-cyclical with a bank's real estate loan portfolio. (JEL: E44, E52, G32)...