This paper analyzes central bank policies on monitoring banks in distress when liquidity provisions are conditional on … with discretion and the second in which the optimal monitoring policy rule is made public. The results show that banks … exert less effort and take higher risks with discretionary monitoring policy. With public information about monitoring rules …

liabilities. In particular, we show that with regard to bank monitoring, monetary policy via collateral requirements leads to a … loans with tighter monitoring of firms. The collateral leverage channel can improve welfare beyond standard bank capital …