Bank erosion was measured at 91 stream banks located in 15 Danish rural 1st and 2nd order streams over a 2-year period. Our aims were firstly to examine factors controlling spatial variation in bank erosion, secondly to estimate sediment and phosphorus (P) loss via bank erosion. The overall mean bank erosion rate was 11 mm year−1. Bank erosion rate over the 2-year period was significantly related to a number of site-specific characteristics, including bank angle, bank vegetation cover, overhanging bank and estimated stream power. An empirical model for bank erosion based on these descriptive variables yielded a 55% explanation of the observed spatial variation in bank erosion rate. Bank erosion was higher at the lower 50-cm bank section (20 mm year−1) than at the upper bank (6 mm year−1). Cattle fencing in grazed areas and buffer zones with riparian woodland lowered bank erosion rates. We found that total P content of bank material was high (0·64 g P kg−1) and at the same level as found in agricultural topsoil along the streams. The overall annual catchment loss of bank-derived clay–silt sediment and total P to streams amounted to 58–72 kg sediment ha−1 and 0·23–0·28 kg P ha−1, respectively. In comparison, the mean annual suspended sediment (SS) and total P losses from 14 similar sized Danish agricultural catchments were 122 kg SS ha−1 and 0·58 kg P ha−1 over the 2-year study period. Thus, bank erosion seems to be a major contributor of suspended sediment and P in this type of small channelized lowland stream. Copyright © 2003 John Wiley & Sons, Ltd.