Bank loan portfolios and the Canadian monetary transmission mechanism

Following a monetary tightening, bank loans to consumers decrease. This is true for both mortgage and non-mortgage loans, and it is true for a tightening by the Bank of Canada that is, and is not, a response to a tightening by the Federal Reserve System. In contrast, business loans increase following a monetary tightening. The `perverse' response of business loans cannot be explained by an increase in the demand for funds due to a reduction in real activity. These results are consistent with a change in bank portfolio behaviour in favour of business loans in response to a monetary tightening.