Survey of Finance Companies

The January issue of the Federal Reserve Bulletin contains the results of the most recent of the massive surveys of finance companies that the Federal Reserve Board undertakes every five years. Finance companies provide loans and leases to consumers, as well as short- and intermediate-term loans and leases to business firms. The survey covers the financial position of these firms at mid-2000.

Total receivables of finance companies

This segment of the industry sector is quite concentrated, with the 20 largest firms accounting for more than two-thirds of total industry receivables. There was essentially no change in the concentration in the finance industry during the five-year period. Over the five years the total assets of the 20 largest firms grew from $524.9 billion to $770.3 billion. Over the same period, their share of total industry assets fell slightly, from 70.1 percent to 68.8 percent.

The accompanying table shows that the total receivables of finance companies grew by almost 50 percent over the past five years. The greatest rate of growth occurred in real estate loans (78.5 percent). But by mid-2000, these loans constituted only 16.5 percent of finance companies' portfolios. In mid-2000, about 45 percent of the industry's portfolio was comprised of business loans and 38.6 percent in consumer loans (excluding real estate). Almost 18 percent of the receivables were securitized.

Finance companies are an important source of funds of small businesses, firms with less than 500 employees. Small business firms were only slightly less likely to use finance companies than banks to finance vehicle purchases. Of the loans and leases to business firms in mid-2000, 57 percent were for business equipment other than motor vehicles. At mid-2000, 21percent of finance companies' portfolios was invested in motor vehicle loans and leases, down from 26 percent five years earlier. The past five years marked a major shift by business firms towards the leasing of motor vehicles. Finance companies' portfolios of business leases of motor vehicles grew at an annual rate of 23.6 percent over the five years. At the same time, their portfolio of retail motor vehicle loans dropped at an annual rate of four percent.

Source: Federal Reserve Board

Consumer receivables of finance companies

Consumer receivables comprised 40.6 percent of total assets at mid-2000, and 38.6 percent of total assets at mid-1995. Finance companies' holdings of consumer credit rose less rapidly than their loans to business or to finance real estate. Finance companies' investment in consumer receivables grew by 42.1 percent over the five- year period, an annual rate of 9 percent. Motor vehicle loans accounted for more than three-fourths of the growth. Motor vehicle leases grew 24.1 percent and accounted for only 27.1 percent of the overall growth. The report notes: "According to industry analysts, the shift away from leasing in recent years has occurred because leasing autos to consumers has turned out to be less profitable for finance companies than anticipated." Revolving credit accounted for only a small share of outstandings and the total growth.

Source: Federal Reserve Board