I am a Professor of Finance at the Frankfurt School of Finance & Management.
Curriculum Vitae (December 2018)
Short Bio
Follow me on twitter: @sascha_steffen
News
"A Capital Structure Channel of Monetary Policy" with Benjamin Grosse-Rueschkamp and Daniel Streitz
forthcoming in the Journal of Financial Economics.
Paper (incl. Online Appendix)
EFA 2018
Abstract
We study the transmission channels from central banks’ quantitative easing programs via the banking sector when central banks start purchasing corporate bonds. We find evidence consistent with a “capital structure channel” of monetary policy. The announcement of central bank purchases reduces the bond yields of firms whose bonds are eligible for central bank purchases. These firms substitute bank term loans with bond debt, thereby relaxing banks’ lending constraints: banks with low Tier-1 ratios and high non-performing loans increase lending to private (and profitable) firms, which experience a growth in capital expenditures and sales. The credit reallocation increases banks’ risk-taking in corporate credit.
"Kicking the can down the road: government interventions in the European banking sector", with Viral V. Acharya and Lea Steinruecke. ***NEW***
Being revised for resubmission to the Review of Financial Studies
Abstract
Building on a novel and comprehensive dataset of all government interventions in the eurozone banking sector, we analyze the implications of government interventions in the European banking sector during the 2007 to 2009 financial crisis for the subsequent sovereign debt crisis. We find that governments with weaker public finances were more reluctant to recapitalize distressed banks during the financial crisis of 2007 to 2009. Insufficient recapitalizations of distressed banks had significant negative consequences for financial stability and real sector lending as weak banks remained vulnerable to future shocks, increased their risk-taking and did not write down defaulted loans by evergreening loans to “zombie” borrowers.
“Does Lack of Financial Stability Impair the Transmission of Monetary Policy?” with Viral V. Acharya, Bjorn Imbierowicz, and Daniel Teichmann,
being revised for the second resubmission to the Journal of Financial Economics, September 2017
Abstract
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.
"Lender of Last Resort, Buyer of Last Resort, and a Fear of Fire Sales in the Sovereign Bond Market" with Viral V. Acharya and Diane Pierret . ***NEW VERSION***
Abstract
We document the mechanism through which the risk of fire sales in the sovereign bond market contributed to the effectiveness of two major central bank interventions designed to restore financial stability during the European sovereign debt crisis. As a lender of last resort via the long-term refinancing operations (LTROs), the European Central Bank (ECB) improved the collateral value of sovereign bonds of peripheral countries. This resulted in an elevated concentration of these bonds in the portfolios of domestic banks, increasing fire-sale risk and making both banks and sovereign bonds riskier. In contrast, the ECB’s announcement of being a potential buyer of last resort via the Outright Monetary Transaction (OMT) program attracted new investors and reduced fire-sale risk in the sovereign bond market..
"Similar Investors" with Co-Pierre Georg and Diane Pierret *** NEW ***
Abstract
We study the effect of strategic complementarities among investors on their decisions to continue to invest in a security issuer. Using detailed security level holdings of U.S. Money Market Mutual Funds (MMFs), we construct a novel measure of portfolio similarity among institutional investors (i.e. MMFs) who are exposed to the same security issuer. Consistent with correlated liquidity needs of more similar investors, the similarity of a fund to other investors in an issuer induces a correlation between the default states of the issuer and the states where the fund's liquidity demand is high. Among funds investing in the same issuer at the same time, we find that the funds reducing their exposure to the issuer are the most similar funds. At the issuer level, the average similarity of the funds investing in an issuer predicts the issuer's total funding flows in the next period. In other words, issuers cannot substitute this loss in funds from similar investors, particularly during crises, and are thus exposed to greater funding liquidity risk.
"Loan Syndication Structures and Price Collusion" with Jian Cai, Frederik Eidam and Anthony Saunders *** NEW ***
Abstract
How does the organizational form of loan syndicates evolve and what are the effects on price collusion? We develop a novel measure of distance in lending expertise among syndicate lenders, and relate this novel measure to the organizational form of loan syndicates and loan pricing. Studying the U.S. syndicated loan market from 1989 to 2017, we find that the organizational form of loan syndicates significantly varies across our lender measure based on similar specializations in lending which we call syndicated distance. Large lead arrangers prefer to form close and concentrated syndicates by letting lenders with similar lending expertise into their syndicates and allocating those lenders higher loan shares. Analyzing loan pricing, we find that concentrated syndicates possess improved screening abilities, but collude on loan pricing. Consistent with Hatfield et al. (2017), we find however that price collusion of concentrated syndicates only occurs during periods of low market concentration. Our findings imply that both the organizational form of loan syndicates and the level of market concentration affect price collusion.
I am a Professor of Finance at the Frankfurt School of Finance & Management.
Curriculum Vitae (December 2018)
Short Bio
Follow me on twitter: @sascha_steffen
News
"A Capital Structure Channel of Monetary Policy" with Benjamin Grosse-Rueschkamp and Daniel Streitz
forthcoming in the Journal of Financial Economics.
Paper (incl. Online Appendix)
EFA 2018
Abstract
We study the transmission channels from central banks’ quantitative easing programs via the banking sector when central banks start purchasing corporate bonds. We find evidence consistent with a “capital structure channel” of monetary policy. The announcement of central bank purchases reduces the bond yields of firms whose bonds are eligible for central bank purchases. These firms substitute bank term loans with bond debt, thereby relaxing banks’ lending constraints: banks with low Tier-1 ratios and high non-performing loans increase lending to private (and profitable) firms, which experience a growth in capital expenditures and sales. The credit reallocation increases banks’ risk-taking in corporate credit.
"Kicking the can down the road: government interventions in the European banking sector", with Viral V. Acharya and Lea Steinruecke. ***NEW***
Being revised for resubmission to the Review of Financial Studies
Abstract
Building on a novel and comprehensive dataset of all government interventions in the eurozone banking sector, we analyze the implications of government interventions in the European banking sector during the 2007 to 2009 financial crisis for the subsequent sovereign debt crisis. We find that governments with weaker public finances were more reluctant to recapitalize distressed banks during the financial crisis of 2007 to 2009. Insufficient recapitalizations of distressed banks had significant negative consequences for financial stability and real sector lending as weak banks remained vulnerable to future shocks, increased their risk-taking and did not write down defaulted loans by evergreening loans to “zombie” borrowers.
“Does Lack of Financial Stability Impair the Transmission of Monetary Policy?” with Viral V. Acharya, Bjorn Imbierowicz, and Daniel Teichmann,
being revised for the second resubmission to the Journal of Financial Economics, September 2017
Abstract
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.
"Lender of Last Resort, Buyer of Last Resort, and a Fear of Fire Sales in the Sovereign Bond Market" with Viral V. Acharya and Diane Pierret . ***NEW VERSION***
Abstract
We document the mechanism through which the risk of fire sales in the sovereign bond market contributed to the effectiveness of two major central bank interventions designed to restore financial stability during the European sovereign debt crisis. As a lender of last resort via the long-term refinancing operations (LTROs), the European Central Bank (ECB) improved the collateral value of sovereign bonds of peripheral countries. This resulted in an elevated concentration of these bonds in the portfolios of domestic banks, increasing fire-sale risk and making both banks and sovereign bonds riskier. In contrast, the ECB’s announcement of being a potential buyer of last resort via the Outright Monetary Transaction (OMT) program attracted new investors and reduced fire-sale risk in the sovereign bond market..
"Similar Investors" with Co-Pierre Georg and Diane Pierret *** NEW ***
Abstract
We study the effect of strategic complementarities among investors on their decisions to continue to invest in a security issuer. Using detailed security level holdings of U.S. Money Market Mutual Funds (MMFs), we construct a novel measure of portfolio similarity among institutional investors (i.e. MMFs) who are exposed to the same security issuer. Consistent with correlated liquidity needs of more similar investors, the similarity of a fund to other investors in an issuer induces a correlation between the default states of the issuer and the states where the fund's liquidity demand is high. Among funds investing in the same issuer at the same time, we find that the funds reducing their exposure to the issuer are the most similar funds. At the issuer level, the average similarity of the funds investing in an issuer predicts the issuer's total funding flows in the next period. In other words, issuers cannot substitute this loss in funds from similar investors, particularly during crises, and are thus exposed to greater funding liquidity risk.
"Loan Syndication Structures and Price Collusion" with Jian Cai, Frederik Eidam and Anthony Saunders *** NEW ***
Abstract
How does the organizational form of loan syndicates evolve and what are the effects on price collusion? We develop a novel measure of distance in lending expertise among syndicate lenders, and relate this novel measure to the organizational form of loan syndicates and loan pricing. Studying the U.S. syndicated loan market from 1989 to 2017, we find that the organizational form of loan syndicates significantly varies across our lender measure based on similar specializations in lending which we call syndicated distance. Large lead arrangers prefer to form close and concentrated syndicates by letting lenders with similar lending expertise into their syndicates and allocating those lenders higher loan shares. Analyzing loan pricing, we find that concentrated syndicates possess improved screening abilities, but collude on loan pricing. Consistent with Hatfield et al. (2017), we find however that price collusion of concentrated syndicates only occurs during periods of low market concentration. Our findings imply that both the organizational form of loan syndicates and the level of market concentration affect price collusion.