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.
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