The growing variety of financial products which became available in recent years, such as home equity loans and mortgage refinancing, allow households to borrow more freely against house collateral; if monetary policy affects house values, this is reflected in consumer spending through the cost and availability of credit.
5  •  While speeding up the transmission of policy decisions through the term structure and asset prices, financial innovation weakens the so-called “bank lending channel”. Traditionally, interest rate increases were thought to decrease banks’ credit supply (through a reduced availability of core deposits), which in turn would affect those borrowers that mostly depend on bank credit for external financing.