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
Journal of Monetary Economics, Volume 143, April 2024. [Paper]
Working Papers
Bank Regulation as Interest Rate Policy [Paper]
Awards: Best Ph.D. Student Paper Award, Financial Intermediation Research Society (FIRS) 2024
Abstract: Bank regulation affects long-term interest rates by altering banks’ demand for safe assets. I find that tighter capital constraints imposed by supervisory stress tests led large banks to tilt their portfolios toward long-term government bonds. I develop a quantitative portfolio choice model where capital constraints tilt banks’ interest rate risk management, strengthening the role of long-term safe assets as a regulatory hedge. The model combines micro evidence on bank portfolios with inelastic markets and countercyclical loan losses, quantifying how bank regulation affects long-term safe rates and interacts with monetary policy in shaping the pricing of safe assets and loans.
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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