This study examines the role of bank equity and bank lending in the monetary transmission mechanism in Norway from January 1993 to August 2008. We apply linear and nonlinear vector-auto-regressive models (VARs) estimated using aggregate monthly data. The results provide support for a “risk-taking channel” in the form of a recasted bank-lending channel running through market-based wholesale funding, in which the impact of monetary policy depends on banks’ financial strength. When banks are weakly capitalized, results based on a nonlinear VAR show a larger monetary-policy effect on real activity.