The theory of the bank-lending channel holds that monetary policy works in part by affecting the supply of loans offered by depository institutions. This concept is a cousin of the idea I proposed in my paper on the Great Depression, that the failures of banks during the 1930s destroyed "information capital" and thus reduced the effective supply of credit to borrowers.
Alan Blinder and I adapted this general idea to show how, by affecting banks' loanable funds, monetary policy could influence the supply of intermediated credit (Bernanke and Blinder, 1988). Historically, monetary policy did appear to affect the supply of bank loans (at any given level of interest rates).