Shocked By Bank Funding Shocks: Evidence From Consumer Credit Cards
Speaker(s) Dr. Rohan Ganduri, Assistant Professor of Finance, Emory University Goizueta Business School Publication CAFRAL Conference room on Mezzanine Floor, Main Building. Reserve Bank of India, Fort, Mumbai 400 001

We examine the transmission of an unexpected sharp decline in banks' short-term wholesale funding availability in 2008 to their consumers using a comprehensive matched bank -- borrower data set. For the same consumer borrowing from two different credit card issuers, a 10% reduction in the bank's wholesale funding leads to a 0.74% reduction in credit card limits for its borrowers. Consumers could not completely hedge away the liquidity shock transmitted by their banks, leading to a 0.36% reduction in aggregate credit card consumption for a 1% reduction in aggregate credit card limits. The effects are more severe (0.68--1.54%) for credit-constrained consumers with lower credit scores and higher credit card utilization ratios in the short-run and the long-run. We confirm our primary results on the full universe of approximately 500 million credit cards. Our results suggest that the structure of a bank's balance sheet impacts their consumers, with banks transmitting their funding shocks to consumers through credit cards, thus affecting aggregate credit card consumption.