Saturday, May 2, 2009

Bank financing of consumer installment credit

the third most important kind of commercial bank loan volume consists of Other Loans to Individuals, which account for $118.4 billion of bank earning assets in 1976. Nearly two thirds of these individual loans were in the form of installment credit, which thus suggests that one should examine the specific role of commercial banks in the extension of consumer installment credit .
Higher proportion of Installment credit from Banks. Total installment credit held by commercial banks at the end of 1976 amounted to $85.4 billion out of total installment credit of $178.7 billion held by all holders of such credit. the proportion of such credit held directly by commercial banks at the end of 1976 was thus 48per cent as compared to 37.7 per cent at the end of 1960,36.6 per cent at the end of 1955, and only 26.3 per cent in 1940.
A Federal Reserve study prepared for Congress in 1957 estimated that actually commercial banks in 1955 were already furnishing well over half of all funds used directly or indirectly in extending consumer installment credit, because commercial banks not only make direct consumer loans but also extend sizable loans to sales finance companies ,who in turn supply credit to consumers. Commercial banks were even more important suppliers of total consumer credit in the 1970's than they were in the mid-1950's.Of the installment credit held directly by commercial banks,about $35.3 billion in 1976 was in the form of automobile paper,whereas the remaining amount was used to finance purchase of other consumer goods,for repair and modernization of home,and for personal purposes such as vacations or the payment of unexpected medical expenses. In addition,about $8.2 billion in 1976 financed the purchhase of mobile homes.

No comments: