This paper investigates the effects of monetary policy on banks and non-bank financial institutions (NBFIs), with particular attention to the role of financial stress. We use high-frequency identified monetary policy shocks and state-dependent local projections to capture non-linear responses across financial sectors. Drawing on aggregated balance sheet data, including total assets, debt securities, and loans, we find that monetary tightening leads to broad-based contractions in total assets and debt holdings, with particularly pronounced effects for banks and investment funds. Loan responses are more heterogeneous, but money market funds and pension funds exhibit notable declines in loan exposures, especially under high-stress conditions. Importantly, we find that financial stress significantly amplifies the contractionary effects of monetary policy across all sectors and asset classes. Our results highlight the differentiated roles and vulnerabilities of financial intermediaries in the transmission of monetary policy and underline the importance of financial conditions in determining its overall effectiveness.
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