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The COVID-19 Shock and Consumer Credit: Evidence from Credit Card Data

Akos Horvath, Benjamin S. Kay and Carlo Wix ()
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No 2021-008, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We use credit card data from the Federal Reserve Board's FR Y-14M reports to study the impact of the COVID-19 shock on the use and availability of consumer credit across borrower types from March through August 2020. We document an initial sharp decrease in credit card transactions and outstanding balances in March and April. While spending starts to recover by May, especially for risky borrowers, balances remain depressed overall. We find a strong negative impact of local pandemic severity on credit use, which becomes smaller over time, consistent with pandemic fatigue. Restrictive public health interventions also negatively affect credit use, but the pandemic itself is the main driver. We further document a large reduction in credit card originations, especially to risky borrowers. Consistent with a tightening of credit supply and a flight-to-safety response of banks, we find an increase in interest rates of newly issued credit cards to less creditworthy borrowers.

Keywords: COVID-19; Bank lending; Consumer credit; Credit cards; Credit supply; Household spending (search for similar items in EconPapers)
JEL-codes: E21 G21 G51 I18 (search for similar items in EconPapers)
Pages: 55 p.
Date: 2021-02-02
New Economics Papers: this item is included in nep-ban, nep-mac and nep-pay
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DOI: 10.17016/FEDS.2021.008

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