KC Fed: AOCI Recognition Boosts Credit Availability
A new staff study from the Kansas City Fed finds that significant holdings of unrealized losses adversely affect loan growth in addition to posing the solvency challenges all to evident in recent failures. The channels through which dampening occurs are first higher equity costs due to investor perceptions of greater risk and lower return. Debt-funding costs are also likely to rise, with higher capital and liquidity costs then passed on to borrowers in terms of higher rates that reduce demand.