Banks' Role in Consumer & Mortgage Credit

The August issue of the Federal Reserve Bulletin provides its annual retrospective survey of commercial banks. In this report we first review the distribution of banks arranged by size. Then, we turn to the role of banks in consumer and mortgage credit when grouped by the size of their assets at the end of 2000. The last section traces trends in banks' holdings of consumer and mortgage credit.

Numbers and size of banks

The United States has far more commercial banks than any other nation. Still, during 2000, the number of commercial banks fell by 264, bringing the total number at year-end to 8,356, as demonstrated in the tabulation below:

Beginning of 2000	8,620
Mergers	- 474
Failures	- 5
New banks	+215
End of 2000	8,356

While this may appear to be a very minor change, it is worthwhile noting that we had over 14,000 banks in 1984.

The 7,356 small banks not included in the 1,000 largest banks hold the largest share of banking assets. Whereas some have asserted that the "big" banks dominate the industry, that does not appear to be the case when banks are ranked by assets. As the table below shows, even though the assets of the 100 largest banks averaged over $2 trillion, they held only 3.09 percent of the industry's assets. In contrast, the 7,356 banks not ranked among the 1,000 largest banks held 81.5 percent of banking assets at the end of 2000.

Source: Federal Reserve Bulletin, August 2000, p. 384.

Let us now focus on market shares of consumer and mortgage credit at the end of 2000. The table below shows the relative emphasis of banks on consumer and mortgage credit at the end of 2000 in relation to the size of the bank. Only 1.34 percent of the assets of the ten largest banks were committed to credit card outstandings, versus almost seven percent of the assets of banks ranked 11-100. In general, the smaller the bank, the greater the portion of its assets that were committed to home mortgages. Thus, the 7,356 banks not ranked in the top 1,000 banks by size had committed 18.4 percent of their assets to consumer and mortgage credit versus 13.4 percent among the 10 largest banks. Overall, at the end of 2000, the ten largest banks had committed 18.8 percent of their assets to consumer and mortgage credit, while the smaller banks had invested an average of 26.4 percent and 27.7 percent of their assets to these two types of credit.

Source: Federal Reserve Bulletin, August 2000, p. 384.

While the previous table showed the portion of their assets that banks of various sizes devoted to different types of consumer and mortgage credit, it does not show the market shares of the various types of credit held by banks, grouped by size of institution. In general, the 100 largest banks dominated the consumer credit and home mortgage market. The accompanying table shows that, as might be expected, they held over four-fifths of all outstanding credit card debt at the end of 2000. To a large extent, economies of scale dictate that only large credit card portfolios can generate the required profits. And, only large banks are capable of managing large portfolios. Thus, the 100 largest banks held 82.6 percent of the credit card market at the end of 2000. Further, the credit card portfolios of the ten largest banks averaged $3.0 billion vs. $1.57 billion for the next 90 largest banks. In addition, at the end of 2000, the 100 largest banks held 66.4 percent of the market of installment loans and 67.3 percent of the home mortgage outstandings.

Source: Federal Reserve Bulletin, August 2000, p. 384.

Changes in consumer and mortgage credit during past five years

Over the five years from 1996 to 2000, commercial banks gradually decreased the portion of their assets committed to consumer loans and residential mortgages. Over that period, the portion of banks' total assets committed to consumer credit dropped from 12.2 percent to 9.4 percent. In slight contrast, the total assets devoted to mortgage credit rose from 14.43 percent to 14.95. Whereas credit card outstandings accounted for 40.0 percent of total consumer credit outstanding at commercial banks at the end of 1996, the portion fell to 37.5 percent at the end of 2000.

Source: Federal Reserve Bulletin, August 2000, p. 384.

Changes in consumer and mortgage credit during 2000

During 2000, banks' loans to households (including securitized loans) rose by 8.7 percent, up from the 4.8 percent rate in 1999 and the largest increase since 1995. Real estate loans on one- to four-family homes rose 9.3 percent during the year, slightly below the previous year's rate of 9.65 percent. Most of the growth occurred during the first half of the year. Throughout the first half of the year, about 30 percent of the residential mortgages had adjustable rates. Falling mortgage rates drove the pace of refinancing to a peak in 1998, but the pace dropped precipitously during 2000 as mortgage interest rates rose, picking up only slightly towards the end of the year. Interestingly, for the first time since 1994, the share of consumer loans that were securitized fell slightly during 2000, possibly because the relative costs of providing direct loans had become less than that of securitized loans.