The global financial crisis has reignited the debate of whether persistently low-interest rates encourage greater risk-taking and raise systemic risk. This has led prominent voices to argue for monetary policy to react to financial stability concerns with the presumption that, by slowing down credit growth, higher policy rates can lessen systemic risk and raise welfare, even in spite of the near-term costs to activity and employment. Advocates of such a view (e.g., Stein 2013 and 2014, BIS 2014, the Riksbank1) argue that even though the policy rate may not be the best tool to deal with financial stability issues, especially when compared to micro- and macro-prudential tools—it has the advantage of “getting in all of the cracks” of the financial system. Others consider the welfare benefits of such a policy to be more elusive with the short-term costs to growth outweighing any incremental beneficial impact on systemic risk. We show evidence that interest rate hikes slow down loan growth but lead intermediation to migrate from banks’ balance sheets to non-banks via increased securitization activity. As such, higher interest rates have the potential for unintended consequences; raising systemic risk rather than lowering it by pushing more intermediation activity to more weakly regulated sectors. In the past, this increased securitization activity was driven primarily by private-label securitization. On the other hand, government-sponsored entities like Freddie Mac and Fannie Mae appear to react to higher policy rates by cutting back on their securitization activity but expanding loans to the Federal Home Loan Bank system.