Shocked by Bank Funding Shocks: Evidence from Consumer Credit Cards

66 Pages Posted: 15 Jan 2020 Last revised: 25 May 2021

See all articles by Sudheer Chava

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business

Rohan Ganduri

Emory University

Nikhil Paradkar

University of Georgia

Linghang Zeng

Babson College - Finance Division

Date Written: July 31, 2018

Abstract

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

Chava, Sudheer and Ganduri, Rohan and Paradkar, Nikhil and Zeng, Linghang, Shocked by Bank Funding Shocks: Evidence from Consumer Credit Cards (July 31, 2018). Available at SSRN: https://ssrn.com/abstract=3509356 or http://dx.doi.org/10.2139/ssrn.3509356

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

HOME PAGE: http://https://fintech.gatech.edu

Rohan Ganduri

Emory University ( email )

1300 Clifton Rd
Atlanta, GA 30322
United States

Nikhil Paradkar

University of Georgia ( email )

Athens, GA 30602-6254
United States

Linghang Zeng (Contact Author)

Babson College - Finance Division ( email )

Babson Park, MA 02457-0310
United States

HOME PAGE: http://sites.google.com/view/linghang-zeng

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