Stefan Walz
Welcome! I am an assistant professor of finance at Boston College. My research studies the interaction between banks and credit markets, with a particular focus on the role of central bank policies.
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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
Abstract: Does deposit funding still drive credit creation? Deposit inflows affect credit directly, through banks' balance sheet response, and indirectly, through a feedback loop in which credit generates new deposits. Using exogenous deposit shocks and a structural model, we show that the total bank-credit impact of a $1 deposit inflow has fallen from $2.13 to $0.88 over two decades. Both channels have weakened: banks extend less credit out of each marginal deposit, reflecting greater costs of balance sheet expansion, and fewer credit proceeds recycle into stable deposits, consistent with declining deposit specialness and a greater use of non-bank alternatives. Central bank policy also matters: Quantitative Easing lowers the credit impact of a marginal deposit through higher capital costs, while Quantitative Tightening can raise it through scarcer liquidity. We show that non-bank credit is unlikely to offset the decline. These findings point to an implicit narrowing of banking that dampens credit creation and reshapes monetary and fiscal policy transmission.
Bank Regulation as Interest Rate Policy [Paper] (June 2026)
Abstract: Bank regulation affects long-term interest rates by altering banks’ demand for safe assets. I find that tighter capital constraints 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] (Sep. 2026)
Engelbert Dockner Memorial Prize for the Best Paper by Young Researchers at the 2026 European Finance Association
Best Paper in Financial Institutions Award at the 2026 Eastern Finance Association
Abstract: A bank failure significantly disrupts the local deposit market. Despite a competitor exit, surviving banks raise deposit rates while their deposit growth falls. Comparing branches of the same bank located in counties with and without a nearby failure, we find that advertised one-year CD rates rise significantly, while annual deposit growth falls. Consistent with an inward shift in local deposit demand that raises survivors' marginal funding costs, aggregate county-level deposit growth also declines, households reallocate funds toward interest-generating alternatives, and surviving banks reduce mortgage originations, especially those with high predetermined funding exposure.
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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