Abstract:

Finance companies are important providers of credit to households and businesses. For households, they originate loans and leases to finance the purchase of consumer goods such as automobiles, furniture, and household appliances; they also extend personal cash loans and loans secured by junior liens on real estate, such as home equity loans. For businesses, they supply short- and intermediate-term credit (including leases) for such purposes as the purchase of equipment and motor vehicles and the financing of inventories.

With roughly $1 trillion in financial assets as of mid-2000, the finance company sector occupies an intermediate position among the sectors that typically lend to households and businesses: In terms of assets, it is more than twice as large as the credit union sector, about the same size as the thrift sector, but only about one-fifth as large as the commercial banking sector. The approximately 1,000 companies that make up the sector (down from about 1,200 in 1996) range in size from very small to very large and include the ''captive'' subsidiary finance companies of motor vehicle manufacturers. The companies tend to be diversified, with more than 90 percent of the sector's assets as of mid-2000 held by companies that did not concentrate in any one type of receivable. The larger firms are more likely to be diversified; of the small firms that specialize, most focus on short- and intermediate-term business receivables. The sector is quite concentrated, and has been for some time, with the twenty largest companies accounting for more than two-thirds of total receivables (see box "Industry Concentration'').

The Federal Reserve System has surveyed the assets and liabilities of finance companies at roughly five-year intervals since 1955. The surveys provide benchmarks for the System's monthly report on the outstanding accounts receivable of finance companies and provide a comprehensive update on these companies' sources of funds. This information in turn becomes an important input to the estimates of total consumer credit and the U.S. flow of funds accounts produced at the Federal Reserve Board. Summarized in this article are the results of the most recent survey, which collected finance company balance sheet information as of June 30, 2000. (Details on sampling procedures are given in appendix A, and complete balance sheet data are provided in table B.1.)