This paper examines the impact of monetary policy on bank balance sheets, focusing on the lending view of monetary policy transmission. The authors argue that if the lending view is correct, large and small banks should respond differently to a contraction in monetary policy, particularly in their loan and security portfolios. They develop a theoretical model to illustrate how capital market imperfections can generate a lending channel of monetary policy transmission and derive cross-sectional predictions about how these imperfections affect the portfolio responses of large and small banks. The empirical analysis uses disaggregated data on bank balance sheets to test these predictions. The paper highlights the importance of considering the behavior of different types of banks to address the debate on the lending view, which has been influenced by both aggregate and disaggregated data. The authors find that small banks are more likely to experience a disproportionate impact on their lending behavior compared to large banks when monetary policy tightens, supporting the lending view.This paper examines the impact of monetary policy on bank balance sheets, focusing on the lending view of monetary policy transmission. The authors argue that if the lending view is correct, large and small banks should respond differently to a contraction in monetary policy, particularly in their loan and security portfolios. They develop a theoretical model to illustrate how capital market imperfections can generate a lending channel of monetary policy transmission and derive cross-sectional predictions about how these imperfections affect the portfolio responses of large and small banks. The empirical analysis uses disaggregated data on bank balance sheets to test these predictions. The paper highlights the importance of considering the behavior of different types of banks to address the debate on the lending view, which has been influenced by both aggregate and disaggregated data. The authors find that small banks are more likely to experience a disproportionate impact on their lending behavior compared to large banks when monetary policy tightens, supporting the lending view.