Shocked by Bank Funding Shocks: Evidence from Consumer Credit Cards
66 Pages Posted: 15 Jan 2020 Last revised: 25 May 2021
Date Written: July 31, 2018
Using the near universe of U.S. consumer credit cards, we show that banks transmit their wholesale funding shocks to consumers by reducing their credit card limits. Credit-constrained consumers who are unable to hedge against the transmitted shock by borrowing from other cards experience a stronger and more persistent reduction in their ability to smooth consumption through credit cards. Aggregate credit card balances for credit-constrained consumers decline by 42--71 cents for a $1 reduction in aggregate credit limits due to the funding shock. Our results highlight who bears the real costs of fragile bank funding structures.
Keywords: bank funding shock, consumer credit cards, consumption
JEL Classification: G21, G51
Suggested Citation: Suggested Citation