4.1  Monetary policy, asset securitization and the changing role of banks  The role of the banking system in the transmission of monetary policy decisions to the economy – the so called “bank lending channel” – was once central. It is now rapidly diminishing. Compared with the traditional way of thinking, this is a sea change.
Banks were previously at the centre of the monetary transmission process. The existence of asymmetric information on the quality of borrowers assigned a special role to banks in assessing firms’ creditworthiness and providing external finance; the sensitivity of banks’ checking deposits to interest rate changes gave monetary policy a powerful tool with which to affect banks’ funding and intermediation activity.