Credit Capacity and the Propagation of Funding Shocks: Evidence from U.S. and Brazilian Financial Intermediaries

Why do similar funding shocks generate sharply different credit outcomes across countries? We develop and estimate a dynamic structural model in which intermediary credit capacity governs the transmission of funding disruptions to lending. Using supervisory data on U.S. banks and credit unions and Brazilian banks and cooperatives from 2002--2025, we recover institution-level credit capacity and its dynamics across major crisis episodes. Credit capacity is three to six times larger in the United States than in Brazil, while persistence is similar across countries. As a result, funding shocks generate substantially larger and more persistent lending contractions in Brazil. Counterfactual analysis shows that differences in baseline credit capacity, rather than persistence, account for most cross-country variation in crisis propagation and policy effectiveness.