This paper examines the impact of monetary policy on bank balance sheets, focusing on the "lending view" of monetary policy transmission. The lending view suggests that monetary policy affects banks' loan supply through changes in reserves, rather than just through interest rates. The authors argue that if this view is correct, large and small banks should respond differently to monetary policy shocks. They test this hypothesis using a theoretical model and empirical data. The paper begins by discussing the debate over the lending view of monetary policy. It notes that while some economists argue that monetary policy primarily affects interest rates, others believe it also influences bank lending behavior. The authors propose a new approach by examining how different types of banks respond to monetary policy shocks, particularly focusing on the impact of reserve changes on loan supply. The authors develop a theoretical model to illustrate how capital market imperfections can generate a lending channel. They argue that banks with limited access to non-deposit financing are more affected by monetary policy changes. They then test this model using empirical data on bank balance sheets. The authors find that small banks are more sensitive to monetary policy changes than large banks. This is because small banks have fewer alternative sources of financing and are more likely to be affected by changes in reserve levels. The results support the lending view of monetary policy transmission, suggesting that monetary policy can influence bank lending behavior through changes in reserves. The paper also discusses the limitations of using aggregate data to test the lending view. It argues that disaggregated data on individual banks is necessary to accurately assess the impact of monetary policy on bank balance sheets. The authors use data from the Federal Reserve's Call Reports to analyze the behavior of different types of banks. The authors conclude that their findings support the lending view of monetary policy transmission. They argue that monetary policy can influence bank lending behavior through changes in reserves, and that small banks are more affected by these changes than large banks. The results suggest that capital market imperfections play a significant role in shaping the transmission of monetary policy.This paper examines the impact of monetary policy on bank balance sheets, focusing on the "lending view" of monetary policy transmission. The lending view suggests that monetary policy affects banks' loan supply through changes in reserves, rather than just through interest rates. The authors argue that if this view is correct, large and small banks should respond differently to monetary policy shocks. They test this hypothesis using a theoretical model and empirical data. The paper begins by discussing the debate over the lending view of monetary policy. It notes that while some economists argue that monetary policy primarily affects interest rates, others believe it also influences bank lending behavior. The authors propose a new approach by examining how different types of banks respond to monetary policy shocks, particularly focusing on the impact of reserve changes on loan supply. The authors develop a theoretical model to illustrate how capital market imperfections can generate a lending channel. They argue that banks with limited access to non-deposit financing are more affected by monetary policy changes. They then test this model using empirical data on bank balance sheets. The authors find that small banks are more sensitive to monetary policy changes than large banks. This is because small banks have fewer alternative sources of financing and are more likely to be affected by changes in reserve levels. The results support the lending view of monetary policy transmission, suggesting that monetary policy can influence bank lending behavior through changes in reserves. The paper also discusses the limitations of using aggregate data to test the lending view. It argues that disaggregated data on individual banks is necessary to accurately assess the impact of monetary policy on bank balance sheets. The authors use data from the Federal Reserve's Call Reports to analyze the behavior of different types of banks. The authors conclude that their findings support the lending view of monetary policy transmission. They argue that monetary policy can influence bank lending behavior through changes in reserves, and that small banks are more affected by these changes than large banks. The results suggest that capital market imperfections play a significant role in shaping the transmission of monetary policy.