Stefan Walz
Welcome! I am an assistant professor of finance at Boston College. My research studies the interaction between banks and asset prices, with a particular focus on the role of central bank policy.
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Publications
How Does the Fed Affect Corporate Credit Costs? Default Risk, Creditor Segmentation and the Post-FOMC Drift (sole-author)
Journal of Monetary Economics, Volume 143, April 2024. [Paper]
Working Papers
Monetary Policy Complementarity: Bank Regulation and Interest Rates [Paper]
Awards: Best Ph.D. Student Paper Award, Financial Intermediation Research Society (FIRS) 2024
Abstract: I show that bank capital regulation lowers long term interest rates by increasing banks' holdings of long term government bonds, effectively acting as an unconventional monetary policy. I study the implementation of bank capital requirements, and their subsequent relaxation in 2018, to show that stricter capital requirements caused banks to shift their portfolios toward long term government bonds. I develop a quantitative bank portfolio choice model where capital requirements modify banks' interest rate risk management problem to make long term government bonds a more valuable hedge. The model features costly bank deposit franchises, countercyclical loan losses, and inelastic asset markets to study equilibrium effects on long term interest rates. Using the model, I find that stricter capital requirements caused long term interest rates to fall by 47 basis points. I demonstrate that countercyclical central bank policies dampen the baseline effect on long term rates and crowd-in bank lending.
When Banks Fail: Depositor Attention and the Cost of Funding for Survivors (with Brian Jonghwan Lee) [Paper]
Presentations: 2025 Behavioural Finance Working Group Conference, 2025 St Louis Fed Community Banking Research Conference, Sungkyunkwan University, 2025 CEPR Paris Symposium, 2026 MFA (scheduled), 2026 EFA (scheduled)
Abstract: We document a novel channel through which bank failures affect the economy by increasing the funding costs of surviving banks, thereby further contracting bank credit provision. Using a sample of U.S. bank failures, we find that competitor banks significantly raise deposit rates following a nearby bank failure, even when controlling for local economic conditions and bank fundamentals. The effect is persistent, lasting up to three years, and is stronger following highly publicized failures. At the same time, we observe weaker deposit and loan growth at surviving banks after failures, despite non-bank lending growing in those areas. Consistent with an increase in depositor price sensitivity, we observe price effects for uninsured and insured deposits. Our findings highlight how banking crises propagate indirectly by making funding more expensive, even if remaining banks are safe, thereby constraining credit supply and amplifying economic downturns.
Policy Publications
Bank Credit Provision and Leverage Constraints: Evidence from the Supplementary Leverage Ratio (with Naz Koont) [Paper]
Appears in Covid Economics 72, 2021
Abstract: We causally identify the implications of relaxing the Supplementary Leverage Ratio in April 2020 for bank balance sheet composition and credit provision. Our findings suggest that this risk-invariant leverage ratio was binding for banks, weakly affected bank liquidity provision in Treasury markets, and strongly affected banks' portfolio composition across asset classes, amounting to a shift of banks' loan supply schedules. The increase in lending is driven primarily by real estate and personal loans, and to a lesser extent by commercial and industrial loans. We additionally provide evidence that the relaxation allowed banks to increase their repo borrowing from cash providers. Our evidence highlights that countercyclical relaxation of uniform leverage constraints can increase bank credit provision during economic downturns, in line with a precautionary cash holdings mechanism. Given the binding nature of the SLR, the relaxation of this constraint may be more effective than other countercyclical measures in allowing banks to extend credit.
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