Shocked by Bank Funding Shocks: Evidence from Consumer Credit Cards.

This article investigates how adverse liquidity shocks to banks, specifically the 2008 dry-up of the short-term wholesale funding market, are transmitted to U.S. consumers through reductions in credit card limits. Using near-universe credit card data from Equifax, the study finds that banks more reliant on short-term wholesale funding reduced credit limits more significantly, disproportionately affecting credit-constrained consumers who face greater credit market frictions and limited ability to substitute credit sources. These consumers experienced persistent declines in both credit card borrowing capacity and actual borrowing, with effects lasting up to a decade. The findings highlight a novel credit card lending channel for the transmission of bank funding shocks, emphasizing the distributional costs borne by vulnerable households and informing debates on the regulatory implications of banks’ reliance on fragile wholesale funding.