Bank-Holdings of Consumer Credit: All of the Eggs are in One Basket

The Federal Reserve Board recently reported that consumer credit outstanding rose by a seasonally adjusted annual rate of 7.3%, $246.5 billion, in April 2015. Consumer credit outstanding now totals $3.385 trillion.

For the first time in 13 months and the second time in 87 months, the monthly growth rate of revolving credit outstanding outpaced the increase in non-revolving credit. Revolving credit outstanding is largely composed of credit card debt while non-revolving consumer credit includes auto loans and student loans. According to the report, the amount of revolving credit outstanding rose in April by a seasonally adjusted annual rate of 11.6%, $103.1 billion. There is now $899.5 billion in outstanding revolving credit.

Total non-revolving credit outstanding also grew over the month of April. Since the size of non-revolving credit outstanding exceeds the amount of revolving credit outstanding, then, at the April growth rates, the growth level of non-revolving credit exceeded the level increase in revolving credit outstanding. Non-revolving consumer credit grew by a seasonally adjusted annual rate of 5.8%, less than the 11.6% registered by revolving credit. However, this growth rate translated into a level increase of $143.4 billion, which was greater than the $103.1 billion level growth in revolving credit outstanding. There is now $2.485 trillion in outstanding non-revolving credit.

Presentation1

A previous post illustrated that the share of consumer credit outstanding held by depository institutions, has been declining. However, despite a declining share of consumer credit outstanding, banks are still the largest major holder of this type of debt. In April 2015, banks accounted for 39.6% of consumer credit outstanding, the majority of which is held by commercial banks. As of February 2014, the latest data available, consumer credit outstanding held by commercial banks represented 91.7% of all consumer credit held by depository institutions. Savings banks held the rest of the consumer credit outstanding at depository institutions.

According to the Federal Deposit Insurance Corporation’s Statistics on Banking, the bulk of consumer credit outstanding is held by large commercial banks while very little is held at small and medium-sized commercial banks. Historically, large banks, those with assets that exceed $1 billion, have held the majority of all commercial bank-held loans to individuals. As illustrated in Figure 1 above, the concentration of the outstanding amount of loans to individuals that resides with large commercial banks has risen over time.

The Federal Deposit Insurance Corporation’s Statistics on Banking provides data on the balance sheets of depository institutions. The Statistics on Banking is a quarterly publication compiled by the Federal Deposit Insurance Corporation (FDIC) that provides detailed aggregate financial information as well as key structural data, such as the number of institutions and branches for all FDIC-insured depository institutions. The balance sheet of all FDIC-insured commercial banks can be isolated by bank size, as measured by total assets. Its line item “loans to individuals” is the total amount of credit cards, other revolving credit plans, automobile loans, and other loans to individuals.

According to the FDIC, “other revolving credit plans” include all extensions of credit to individuals for household, family, and other personal expenditures arising from prearranged overdraft plans and other revolving credit plans not accessed by credit cards. Prior to 2001, this item was report as part of credit cards. “Other loans to individuals” encompasses household appliances, repairs or improvements to the borrower’s residence not secured by real estate, educational expenses such as including student loans, medical expenses, personal taxes, vacations, consolidation of personal nonbusiness debts purchases of real estate or mobile homes that are not secured by real estate but are to be used as a residence by the borrower’s family, and other personal expenditures. Prior to 2011, automobile loans were included in other loans to individuals.

In 1992, large banks, those with assets that exceed $1 billion, accounted for 72.6% of all commercial bank-held loans to individuals, the earliest year of available data. At the same time, medium-sized banks, those commercial banks with assets that range between $100 million and $1 billion, held 19.6% of all bank-held loans to individuals. Meanwhile, the loans to individuals held by small banks, those with assets less than $100 million, represented 7.8% of all commercial bank-held individual loans. However, by the end of 2014, the share held by large banks had risen to 97.4%, while the shares held by both medium- and small-sized banks fell to 2.3% and to 0.3% respectively.

Presentation2

In each category of “loans to individuals”, large banks account for more than 90% of the total amount outstanding held at commercial banks. According to Figure 2 above, large banks, those commercial banks with assets that exceed $1 billion, hold 99.7% of all bank-held credit card debt outstanding, 98.1% of other revolving credit plans, 96.3% of automobile loans, and 92.6% of other loans to individual loans. Meanwhile, medium-sized banks, those with assets between $100 million and $1 billion, account for 0.3% of all commercial bank-held credit card debt, 1.9% of other revolving credit plans, 3.2% of automobile loans, and 6.6% of other loans to individuals. Smaller banks, those with assets less than $100 million dollars hold the rest, which is very little. These smaller banks account for virtually none of the credit card debt held by banks, 0.1% of other revolving credit plans, 0.5% of automobile loans, and 0.8% of other loans to individuals.



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