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M.Reiner and D. Worms: The Intermediary Channel of Monetary Policy

December 5, 2025

This paper investigates how monetary policy shocks propagate to asset prices via their impact on financial intermediaries. Based on high-frequency U.S. financial sector equity returns around FOMC announcements, we first document a striking reversal in the effects of monetary policy on intermediaries: while tightening surprises depressed financial sector stocks relative to the market prior to the Great Financial Crisis, they raised intermediary stock prices during the monetary policy normalization from 2013 to 2019, particularly for firms with lower net interest margins, higher risk and greater deposit dependence. We then document that intermediary announcement returns have strong predictive power for asset price changes around FOMC announcements-in particular for financial conditions and risk perceptions-and convey information beyond what is captured by common policy surprise measures and the reaction of the broad stock market. Our results illustrate that announcement returns of the U.S. financial sector constitute a concise, forwardlooking measure of policy-induced shifts in financial sector health and highlight the role of intermediaries in shaping the risk-taking channel of monetary policy.

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