Upcoming Talks and Conferences
Upcoming in 2018: AFA, AEA, IBEFA
Follow me on twitter: @sascha_steffen
Current Academic and Non-Academic Appointments
Professor of Finance, Frankfurt School of Finance & Management, Since August 2017
Research Fellow Center for Financial Studies (CFS), Since 2013
Forschungsprofessor ("Professor of Research"), IWH - Halle Institute of Economic Research, 2014 - 2017
Member of the Schmalenbach-Arbeitskreis „Strategieentwicklung und Controlling in Banken“, Since 2015
Academic Advisory Board "Frankfurt Institute for Risk Management and Regulation (FIRM)", Since 2016
Associate Editor, Journal of Banking and Finance, Since 2017
Curriculum Vitae (December 2017)
"Cutting Out the Middleman – The ECB as Corporate Bond Investor" with Benjamin Grosse-Rueschkamp and Daniel Streitz
*** Revised Version (Dec 2017) ***
We propose a novel mechanism how central bank interventions can affect the real economy: direct corporate debt purchases by a central bank can increase the effectiveness of the bank-lending channel. We test this conjecture in the context of the European Central Bank’s Corporate Sector Purchase Programme (CSPP), launched in June 2016, which increases the supply and lowers the cost of capital for eligible, i.e., investment-grade rated, firms. These firms substitute bank term loans with bond debt. Banks with a high share of CSPP-eligible firms in their loan portfolio increase lending to private but not public firms after the announcement of the CSPP. The increase in lending is driven by previously weakly capitalized banks (low Tier 1 ratio and banks from GIIPS countries) consistent with an easing of bank capital constraints through the CSPP.
"Feasibility Check: Transition to a New Regime for Bank Sovereign Exposure?" with Yannik M. Schneider, prepared in the context of Economic Dialogues with the President of the Eurogroup in ECON, November 2017
Excessive sovereign debt exposures of banks contributed to the gravity of the financial and sovereign debt crisis in 2011 and 2012, as well as to the slow and asymmetric recovery of European countries. Various policies that improve banks’ resilience were introduced in recent years, however the regulatory regime for the sovereign debt exposure of banks has not changed. We identify four criteria that a new regime for bank sovereign exposures should fulfil: (1) attenuate the home bias to the domestic sovereign, (2) break the doom loop, (3) avoid a flight-to-quality of assets, and (4) mitigate risk spillovers. We assess the implications for banks’ balance sheets for five policy proposals, based on simulations on a sample of European banks. We show that none of the proposals would fulfil all four criteria in the absence of a safe asset. We conclude that a new regime for bank sovereign exposure should be conditional on restoring the value of sovereign bonds as a safe asset.
News - Academic Research
"Does the Lack of Financial Stability Impair the Transmission of Monetary Policy?" with V. Acharya, B. Imbierowicz, and D. Teichmann, September 2017 * resubmitted to the Journal of Financial Economics.
We investigate the transmission of central bank liquidity to bank deposits and loan spreads in Europe over the January 2006 to June 2010 period. We find evidence consistent with an impaired transmission channel due to bank risk. Central bank liquidity does not translate into lower loan spreads for high-risk banks, even as it lowers deposit rates for both high-risk and low-risk banks. This adversely affects the balance sheets of high-risk bank borrowers, leading to lower payouts, lower capital expenditures, and lower employment. Overall, our results suggest that banks’ capital constraints at the time of an easing of monetary policy pose a challenge to the effectiveness of the bank lending channel and the effectiveness of the central bank as a lender of last resort.
"The Zero Risk Fallacy - Banks' Sovereign Exposure and Sovereign Risk Spillovers", with Karolin Kirschenmann and Josef Korte, New version, August 2017.
European banks are exposed to a substantial amount of risky sovereign debt. The “missing bank capital” resulting from the zero-risk weight exemption for European banks for European sovereign debt amplifies the co-movement between sovereign CDS spreads and facilitates cross-border financial-crisis spillovers. Risks spill over from risky periphery sovereigns to safer core countries, but not in the opposite direction nor for exposures to countries not exempted from risk-weighting. We consider the trade-off of benefits of sovereign debt (for banks and sovereigns) and spillover risk when applying risk-weights. More bank capital as well as positive risk-weighting for sovereign exposures mitigates spillovers.
"Lender of Last Resort versus Buyer of Last Resort - Evidence from the European Sovereign Debt Crisis" with Viral V. Acharya and D. Pierret, August 2017. *** Revised Version ***
We document channels of monetary policy transmission to banks following two significant interventions of the European Central Bank (ECB) during the sovereign debt crisis. As a lender of last resort via the long-term refinancing operations (LTROs), the ECB improved the collateral value of short-term sovereign bonds of peripheral countries. Banks in the peripheral countries became excessively dependent on public funds and increased their exposure to domestic debt. An elevated concentration of peripheral sovereign bonds in the portfolios of risky banks increased fire sale risk, increasing the riskiness of both banks and sovereign bonds. In contrast, the ECB’s announcement of being a potential buyer of last resort via the Outright Monetary Transaction (OMT) program attracted new investors to the sovereign bond market, reduced concentration and fire sale risk, and permanently improved solvency conditions for eurozone banks.