Rise in intangible assets weakens monetary policy transmission
Deutsche Bundesbank Executive Board member Fritzi Köhler-Geib stated that growing investment in intangible assets weakens the transmission of monetary policy through traditional credit channels. Speaking in Geneva, she called for improved measurement of intellectual property.
Collateral constraints dull rate hikes
Investment in intangible assets such as intellectual property, software, and brands now accounts for 12.8 percent of global GDP, exceeding tangible investment.
According to research cited by Köhler-Geib, a 25 basis point rate increase reduces physical investment by 5 to 6 percent after three years, whereas intangible investment falls by less than 1 percent.
Because intangibles are difficult to value and recover upon default, firms cannot easily pledge them as collateral.
This weakens the credit channel of monetary policy transmission, particularly for younger and smaller cash-poor companies.
Consequently, central banks may need to implement larger policy rate changes than in the past to achieve the same real-economy impact.
Lenders shift focus to real estate
The expansion of intangibles also affects financial stability by reshaping bank balance sheets.
Research shows commercial lending's portfolio share at US banks dropped by one third over three decades, with intangibles driving roughly 30 percent of that decline.
As intangible-heavy firms rely more on cash, banks reallocate credit toward real estate mortgages, an asset class historically linked to systemic risk.
Adding to supervisory challenges, 62 percent of intangible investments remain unrecorded in official statistics, making precise risk calibration difficult.
A necessary wake-up call for central banking
Central banks cannot rely on monetary models built for physical capital.
Suggesting larger rate increases to offset weak transmission risks creating unnecessary economic volatility.
Regulators should fix collateral frameworks rather than relying on blunt policy rate adjustments.