Stefan Walz
Welcome! I am a Finance PhD candidate at Columbia Business School. My research studies the interaction between monetary policy and financial markets, with a particular focus on how financial intermediaries impact asset prices and other outcomes.
Update: I am very excited to announce that I will be joining Boston College as an Assistant Professor of Finance this summer!
Contact Information: swalz24@gsb.columbia.edu
CV: CV
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 [SSRN]
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.
Presentations: 20th Annual Olin Finance Conference at WashU (Poster Session with Award, 2024), Northern Finance Association PhD Session (2024), Federal Reserve Board of Governors (2024), FIRS PhD Session (2024), OFR PhD Symposium (2023), JHU Carey Finance Conference (2023), Federal Reserve Bank of San Francisco (2023), Columbia (2022, 2023, 2024)
Banks Affect Stock Returns: Evidence from Portfolio Sorts
Abstract: Banks affect stock returns even though they do not directly hold stocks. Firms that rely on banks versus non-banks to finance their operations earn significantly lower risk-adjusted returns, even after controlling for the factor zoo. Bank reliant firms outperform market reliant firms when banking sector net worth increases. I provide a simple framework to link the lower returns of bank-reliant firms to the monitoring and renegotiation properties of costly bank financing. Overall, the evidence indicates that enhanced bank regulation and the rise of non-bank financing may have contributed to higher equity returns in recent years.
Bank Credit Provision and Leverage Constraints: Evidence from the Supplementary Leverage Ratio [SSRN] (with Naz Koont)
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.
Bank Failures and Local Spillovers (with Brian Jonghwan Lee)
Abstract: Bank failures impose significant costs across the economy. We document that bank failures propagate through heightened depositor price sensitivity, implying that the direct costs understate the true costs of banking crises. We show that subsequent to a bank failure, local competitor banks significantly raise their deposit rates, despite weaker deposit and lending growth. These findings can be rationalized by an increased price sensitivity of depositors, emphasizing the role of depositor attentiveness in amplifying the costs of bank failures. We present cross-sectional evidence consistent with a uniform increase in depositor price sensitivity as the main mechanism explaining our findings.