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
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: Suggested Citation