How To Understand The Financial Situation In The United States

Transcription

1 The FINANCIAL SERVICES Fact Book 2007 Insurance Information Institute The Financial Services Roundtable

2 to the Reader Each year the Financial Services Fact Book, a partnership between the Insurance Information Institute and The Financial Services Roundtable, expands to reflect developments shaping the financial services sectors. This year s book highlights a host of new trends, from baby boomer demographics to the general mobility of the U.S. population. Among the new charts in this our sixth edition: State migration flows Top baby boomer destination states Income by region and age group Investments in separately managed accounts (40)k rollover rates Health care financing Health savings accounts, characteristics of owners Top global asset managers Asset manager mergers and acquisitions Online auto insurance purchases Insurance direct marketing This endeavor could not succeed without the help of many organizations, consultants and others who collect industry data and who have generously given permission to use their data in this book. However, the bulk of the work involved in collecting, integrating and interpreting the material was done by the Insurance Information Institute, which accepts editorial responsibility for the book. The Financial Services Roundtable and the Insurance Information Institute actively seek your advice, comments and suggestions for next year s edition. Gordon Stewart President Insurance Information Institute Steve Bartlett President and Chief Executive Officer The Financial Services Roundtable 2007 Insurance Information Institute. ISSN

3 Contents Financial Services at a Glance... V Chapter : The Financial Services Industry... Overview... Assets... 2 Mergers... 3 Employment... 5 Gross Domestic Product... 6 Leading Companies... 9 Chapter 2: Savings, Investment and Debt Ownership... National Savings... Investments... 2 Household Assets... 7 Educational Plans and Loans... 2 Consumer and Business Debt Consumer Debt Bankruptcy Consumer Fraud and Identity Theft... 3 Chapter 3: Asset Management/Retirement Funds Asset Management Retirement Assets Annuities Mutual Funds Chapter 4: Convergence Financial Holding Companies Bank Holding Companies Banks Insurance Companies Chapter 5: Insurance... 6 Overview... 6 All Sectors Property/Casualty: Financial Property/Casualty: Premiums by Line Property/Casualty: Specialty Lines Property/Casualty: Reinsurance... 8 Property/Casualty: Capital Markets Life/Health: Financial Life/Health: Premiums by Line Health Insurance... 9 Chapter 6: Banking Overview All Sectors Commercial Banks... 02

4 Thrift Institutions... 0 Remittances... 5 Credit Unions... 6 Industrial Banks Chapter 7: Securities... 2 Overview... 2 Capital Markets Asset-backed Securities Derivatives Exchanges Mutual Funds Hedge Funds Separately Managed Accounts Chapter 8: Finance Companies Overview Assets and Liabilities Profitability Receivables Concentration Leading Companies... 5 Chapter 9: Mortgage Finance and Housing Mortgages Home Ownership... 6 Home Equity Loans Leading Companies Chapter 0: Technology IT Spending Electronic Commerce Electronic Payments... 7 ATMs Chapter : World Rankings Chapter 2: Demographics Geographic Mobility Income Appendices Summaries: Gramm-Leach-Bliley, Pension Plans, Insurance Accounting Brief History... 9 Financial Services Organizations Company Index Subject Index I.I.I. and The Financial Services Roundtable Member Companies I.I.I. and The Financial Services Roundtable Staff I.I.I. and The Financial Services Roundtable Board Members... 28

5 Chapter Head Financial Services at a Glance The assets of the financial services sector grew 7.8 percent to $49.0 trillion in 2005 from $45.4 trillion in The financial services industry s gross domestic product (GDP), excluding the real estate sector, reached $927 billion in 2004, accounting for nearly 8 percent of the national GDP. Financial services employed 6 million workers in 2005, accounting for 5 percent of total U.S. employment in private industry. Financial assets of the personal sector almost doubled to $34.2 trillion in 2005 from $8.6 trillion in 995. This sector includes households, nonfarm noncorporate business and farm business. Household debt rose.7 percent and business debt rose 5.7 percent from 2004 to Insurance fee income reported by banks rose to $4.6 billion in 2005 from $4.3 billion in Investment fee income reported by banks rose slightly to $0.0 billion in 2005 from $9.8 billion in ASSETS OF FINANCIAL SERVICES SECTORS, 2005 ($ billions) FINANCIAL SERVICES EMPLOYMENT BY INDUSTRY, 2005 (000) Other $6,268.4 Government-related $6,482.6 Insurance $5,646. 3% 3% % 7% Pensions $8, % 2% Banking $,70.2 Securities $0,466.9 Nondepository credit intermediation 766. Securities, commodity contracts, investments % 3% Other % Depository credit intermediation, % Insurance carriers and related 38% activities 2,255.4 Source: Board of Governors of the Federal Reserve System. Source: U.S. Department of Labor, Bureau of Labor Statistics. V

6 Chapter : The Financial Services Industry Overview Before the Gramm-Leach-Bliley Financial Services Modernization Act (GLB) was passed in 999, competition among the various segments of the financial services industry was strictly limited by law. GLB removed many of the Depression era barriers that restricted competition. Now many of the leading financial services companies are doing business across sectors as the convergence of products and services that began in the 970s continues to gather momentum. However, others have chosen different paths. Some have elected to become specialists in their fields, in some cases shedding segments of the financial services business they owned before the act was passed. Today, financial services consumers have much the same kind of choice as they do in other industries. They can select from an ever broadening array of financial tools and a wide spectrum of financial services distributors, from companies that aim to serve their customers multiple needs to those that specialize in one or two types of products. When the act passed it was expected to spur massive crosssector mergers. Mergers did occur but for the most part not among leading players. Banks bought specialized securities firms, accounting for 34 percent of securities industry mergers between 200 and Banks also bought insurance agencies and brokers, rather than insurance companies as had been predicted. Some of the largest insurance brokerages now belong to banks. Insurance companies applied for new thrift charters to open banks instead of buying existing ones. Moreover, the arrangement that provided the major impetus for the passage of GLB, Citigroup s merger with Travelers Insurance Group, has been dissolved. In 2002 the bank spun off the property/casualty insurance unit of Travelers, which was bought by the St. Paul Companies in 2003, and sold the life unit to MetLife in National Bank Act limiting bank insurance sales except in small towns 933 Glass-Steagall Act prohibiting commercial banks and securities firms from engaging in each other s business 956 Bank Holding Company Act restricting bank holding company activities 995 VALIC U.S. Supreme Court decision allowing banks to sell annuities 996 Barnett Bank U.S. Supreme Court decision allowing banks to sell insurance nationwide 999 Gramm-Leach-Bliley Act allowing banks, insurance companies and securities firms to affiliate and sell each other s products 200 U.S. House of Representatives Banking Committee becomes the Financial Services Committee 2002 Citigroup spins off its Travelers property/ casualty insurance unit 2005 Citigroup sells its Travelers life unit

7 The Financial services industry Assets Assets of Financial Services Sectors, 200 ($ billions) Other $4,90.2 Governmentrelated $5,4.2 Other $6,268.4 Governmentrelated $6,482.6 Insurance $4,084.5 % 4% % 9% Pensions $6, ($ billions) Insurance $5,646. 3% % 23% 22% 24% 3% 2% 7% Pensions $8,40.0 Banking $8,626.0 Securities $7,98.2 Source: Board of Governors of the Federal Reserve System. Banking $,70.2 Securities $0,466.9 Commercial banking includes U.S.-chartered commercial banks, foreign banking offices in the United States, bank holding companies, and banks in U.S.-affiliated areas. 2 Savings institutions include savings and loan associations, mutual savings banks and federal banks. 3 Securities broker/dealers include investment banks. 4 Private pension funds include defined benefit and defined contribution plans (including 40(k)s) and the Federal Employees Retirement Thrift Savings Plan. 5 Data are for 997 (latest data available). Source: Board of Governors of the Federal Reserve System. ASSETS OF FINANCIAL SERVICES SECTORS BY INDUSTRY, ($ billions, end of year) Sector Banking Commercial banking $8,496.6 $9,236.0 Savings institutions 2,649.0,788.7 Credit unions Total 0,800.3,70.2 Insurance Life insurance companies 4,30.3 4,380.7 All other insurers,66.5,265.4 Total 5, ,646. Securities Mutual and closed-end funds 7,56.8 8,322.8 Securities broker/dealers 3, ,44. Total 9, ,466.9 Pensions Private pension funds 4 4, ,63.3 State and local govt retirement funds 2, ,72.7 Federal govt retirement funds,024.0,075.0 Total 8, ,40.0 Government-related Government lending enterprises 2, ,805. Federally related mortgage pools 3, ,677.5 Other Total 6,42.6 6,482.6 Finance companies,456.3,334.6 Real estate investment trusts Mortgage companies Asset-backed securities issuers 2,43.6 3,059. Funding corporations,286.3,488.0 Total 5,44.6 6,268.4 Total All Sectors 45, ,

8 The Financial services industry MERGERS NUMBER AND VALUE OF ANNOUNCED FINANCIAL SERVICES MERGERS AND ACQUISITIONS BY SECTOR, ($ billions) Deals Value Deals Value Deals Value Deals Value Deals Value Securities 228 $ $ $ $ $7.7 Specialty finance Banks Thrifts Insurance Life/health Property/casualty Brokers and agents Managed care Total Includes securities and investment companies, broker/dealers and asset managers. 2 Specialty finance firms range from small finance companies to issuers of major credit cards. Source: SNL Financial LC NUMBER OF Announced FINANCIAL SERVICES MERGERS AND ACQUISITIONS, n Securities n Specialty finance n Banks/thrifts n Insurance Source: SNL Financial LC

9 The Financial services industry mergers TOP TEN FINANCIAL SERVICES CROSS-INDUSTRY ACQUISITIONS ANNOUNCED IN 2005, UNITED STATES ($ millions) Rank Buyer Industry Country Target Industry Country Deal Value 2 Bank of America Corp. Bank U.S. MBNA Corp. Credit card U.S. $35, Washington Mutual Inc. Thrift U.S. Providian Financial Corp. Credit card U.S. 6, Capital One Financial Corp. Credit card U.S. Hibernia Corp. Bank U.S. 4, Pacific Mutual Holding Co. Insurance U.S. Boullioun Aviation Services Inc. Equipment lender U.S. 2, Morgan Stanley Broker/ dealer U.S. Goldfish credit card business Credit card U.S., Investor consortium Not classified U.S. UICI Life and health U.S., HSBC Holdings plc Bank U.K. Metris Companies Inc. Credit card U.S., General Electric Co. Not classified U.S. Inventory finance business Equipment lender U.S., Private equity consortium Not classified U.S. GMAC Commercial Holding Corp. Commercial mortgage bank U.S., U.S. Bancorp Bank U.S. Corporate trust and institutional custody business Trust company U.S List only includes transactions between different financial services sectors. At least one of the companies involved is a U.S.-domiciled company. List does not include terminated deals. 2 At announcement. Source: SNL Financial LC. 4

10 The Financial services industry employment EMPLOYMENT From 200 to 2005 employment in the financial services industry averaged 5.4 percent of total U.S. employment. Year Monetary authorities EMPLOYMENT IN THE FINANCIAL SERVICES INDUSTRY, (000) Depository credit intermediation Nondepository credit intermediation Activities related to credit intermediation Securities, commodity contracts, investments Insurance carriers and related activities Funds/ trusts , , , , , , , , , , , , , , ,02.0 Source: U.S. Department of Labor, Bureau of Labor Statistics. Total 6% FINANCIAL SERVICES AS A PERCENT OF U.S. EMPLOYMENT IN PRIVATE INDUSTRY, % 5.3% (Percent) 5.5% 5.4% 5.4% Employment in private industry grew from 0.7 million in 200 to.7 million in FINANCIAL SERVICES EMPLOYMENT BY INDUSTRY, 2005 (000) Other % Insurance carriers and related activities 2, % Excludes real estate. Source: U.S. Department of Labor, Bureau of Labor Statistics Nondepository credit intermediation % Securities,commodity contracts, investments % Source: U.S. Department of Labor, Bureau of Labor Statistics. Depository credit intermediation, % 5

11 The Financial services industry Gross Domestic Product FINANCIAL SERVICES CONTRIBUTION TO GROSS DOMESTIC PRODUCT Gross domestic product (GDP) is the total value of all final goods and services produced in the economy. The GDP growth rate is the primary indicator of the state of the economy. GROSS DOMESTIC PRODUCT OF FINANCIAL SERVICES, SHARES BY COMPONENT, INCLUDING REAL ESTATE, 2004 When real estate trans actions (e.g., development, mortgages and related services, property sales and rentals) are included, financial services account ed for 20.6 percent of the GDP in 2004, basically unchanged from Federal Reserve banks, credit intermediation and related activities 9% Securities, commodity contracts and investments 7% Real estate and rental and leasing 62% Insurance carriers and related activities % Funds, trusts and other financial vehicles % Source: U.S. Department of Commerce, Bureau of Economic Analysis. GROSS DOMESTIC PRODUCT OF FINANCIAL SERVICES, SHARES BY COMPONENT, EXCLUDING REAL ESTATE, 2004 With real estate excluded, the remaining financial services industries contributed 7.9 percent to the GDP in 2004, compared with 8. percent in Funds, trusts and other financial vehicles 2% Insurance carriers and related activities 29% Federal Reserve banks, credit intermediation and related activities 50% Securities, commodity contracts and investments 9% Source: U.S. Department of Commerce, Bureau of Economic Analysis. 6

12 The Financial services industry Gross Domestic Product GROSS DOMESTIC PRODUCT OF THE FINANCIAL SERVICES INDUSTRY, ($ billions) Total GDP $9,87.0 $0,28.0 $0,469.6 $0,97.2 $,734.3 Total financial services industry,93.0 2, ,4.9 2, ,42.9 Industry percent of total GDP 9.7% 20.3% 20.5% 20.6% 20.6% Finance and insurance $740.5 $782.6 $822.7 $885.2 $927.4 Insurance carriers and related activities Federal Reserve banks, credit intermediation and related activities Securities, commodity contracts and investments Funds, trusts and other financial vehicles Total real estate and rental and leasing,90.5,276.6,39.2,375.2,485.5 Real estate,082.,69.7,25.9,268.6,374.7 Rental and leasing services and lessors of intangible assets Includes real estate and rental and leasing. Source: U.S. Department of Commerce, Bureau of Economic Analysis. FINANCIAL SERVICES SECTOR S SHARE OF GROSS DOMESTIC PRODUCT, Percent of total gross domestic product Finance, insurance, real estate, and rental and leasing 9.7% 20.3% 20.5% 20.6% 20.6% Finance and insurance Federal Reserve banks, credit intermediation and related activities Insurance carriers and related activities Securities, commodity contracts and investments Funds, trusts and other financial vehicles Total real estate and rental and leasing Includes real estate and rental and leasing. Source: U.S. Department of Commerce, Bureau of Economic Analysis. 7

13 The Financial services industry Gross Domestic Product Year FINANCIAL SERVICES VS. TOTAL U.S. GROSS DOMESTIC PRODUCT GROWTH, ($ billions) Total U.S. gross domestic product Percent change from prior year Finance, insurance, real estate and rental and leasing Percent change from prior year Finance and insurance Percent change from prior year 2000 $9, % $, % $ % 200 0, , , , , , , , Source: U.S. Department of Commerce, Bureau of Economic Analysis. FINANCIAL SERVICES PERCENTAGE SHARE OF GROSS STATE PRODUCT, 2004 State Percent Alabama 5.6% Alaska 3.5 Arizona 8.6 Arkansas 4.5 California 7. Colorado 6.8 Connecticut 6.6 Delaware 33.0 D.C. 5.6 Florida 7.3 Georgia 6.4 Hawaii 4.8 Idaho 4.3 Illinois 0.0 Indiana 6. Iowa 0.7 Kansas 6.3 State Percent Louisiana 4.0% Maine 6.9 Maryland 6.8 Massachusetts.9 Michigan 5.9 Minnesota 0.5 Mississippi 4.5 Missouri 6.3 Montana 5.2 Nebraska 8.4 Nevada 8.5 New Hampshire 8.4 New Jersey 8.4 New Mexico 3.7 New York 6.7 North Carolina 0.3 North Dakota 6.6 State Percent Oklahoma 5.3% Oregon 5.5 Pennsylvania 7.6 Rhode Island 3.9 South Carolina 4.9 South Dakota 7.8 Tennessee 6.3 Texas 6.6 Utah 9.2 Vermont 5.9 Virginia 6.7 Washington 6. West Virginia 4.0 Wisconsin 7.4 Wyoming 2.8 Total United States Kentucky 5. Ohio 7.7 Excludes real estate. 2 Differs from data shown elsewhere for total United States due to rounding. Source: U.S. Department of Commerce, Bureau of Economic Analysis. 8

14 The Financial services industry LEADING COMPANIES LARGEST U.S. FINANCIAL SERVICES FIRMS BY REVENUES, 2005 ($ millions) Profits as a percent of Rank Company Revenues Profits Revenues Assets Industry Employees General Electric $57,53 $6,353 0% 2% Diversified financial 36,000 2 Citigroup 3,045 24, Banking 303,000 3 American Intl. Group 08,905 0,477 0 Insurance 97,000 4 Bank of America Corp. 83,980 6, Banking 76,638 5 Berkshire Hathaway 8,663 8, Insurance 92,02 6 J.P. Morgan Chase & Co. 79,902 8,483 Banking 68,847 7 State Farm Insurance Cos. 59,224 3, Insurance 67,943 8 Morgan Stanley 52,498 4,939 9 Securities 53,28 9 Merrill Lynch 47,783 5,6 Securities 54,600 0 MetLife 46,983 4,74 0 Insurance 65,500 Goldman Sachs Group 43,39 5,626 3 Securities 22,425 2 Wells Fargo 40,407 7, Banking 53,500 3 Wachovia Corp. 35,908 6,643 9 Banking 93,980 4 Allstate 35,383,765 5 Insurance 38,900 5 Lehman Brothers 32,420 3,260 0 Securities 22,99 6 Prudential Financial 3,708 3,540 Insurance 38,853 7 American Express 30,080 3, Diversified financial 65,800 8 New York Life Insurance 28,05,422 5 Insurance 3,80 9 Hartford Financial Services 27,083 2,274 8 Insurance 30, TIAA-CREF 25,97 2,00 8 Insurance 6,038 2 St. Paul Travelers Cos. 24,365,622 7 Insurance 3, Mass. Mutual Life Ins. 22,799,446 6 Insurance,6 23 Nationwide 2,832,49 5 Insurance 34, Washington Mutual 2,326 3,432 6 Banking 60, Liberty Mutual Ins. Group 2,6,027 5 Insurance 39,072 Source: Fortune. 9

15 The Financial services industry Leading companies There are 32 financial services firms among the Fortune 500. Together they had revenues of $.8 trillion and profits of $222.0 million. LARGEST FINANCIAL SERVICES COMPANIES BY SECTOR, 2005 Industry Number of Fortune 500 companies Revenues ($ millions) Share of total financial services sector revenues Profits ($ millions) Share of total financial services Banks Savings 4 $33,38.8% $5, % Commercial , , Insurance Life and health , , Property/casualty , , Diversified financials 5 256, , Securities 3 209, , Total 32,848, , Based on companies in the Fortune 500. Source: Fortune; Insurance Information Institute. 0

16 Chapter 2: Savings, Investment and Debt Ownership National savings SAVINGS, INVESTMENT AND DEBT OWNERSHIP Individuals and businesses seek to increase their assets through savings and investments. They also borrow to purchase assets or finance business opportunities. The financial services industry exists to manage these activities, bringing savers, investors and borrowers together, a process known as financial intermediation. The banking industry acts as an intermediary by taking deposits and lending the funds to those who need credit. The securities industry fulfills the role of intermediary by facilitating the process of buying and selling corporate debt and equity to investors. The insurance industry safeguards the assets of its policyholders, investing the premiums it collects in corporate and government securities. Finance companies provide credit to both individuals and businesses, funded in large part by issuing bonds, asset-backed securities and commercial paper. NATIONAL SAVINGS Gross national savings is the excess of production over cost, or earnings over spending. Gross national savings grew in the late 990s, fueled largely by increased saving by federal, state and local governments, but fell in the three years, 2000 to Beginning in 2002, total government saving turned negative due to federal personal income tax refunds and rising expenditures at all levels of government. In 2005, governments spent $33 billion more than they received, compared with $395 billion in Personal saving is the excess of personal disposable income over spending. Personal savings turned negative in 2005, dropping by 20 percent from the previous year. $2,000,500, GROSS NATIONAL SAVINGS, ($ billions) Total gross saving Corporate saving Personal saving Government saving National savings grew by $68 billion from $,544 billion in 2004 to $,62 billion in National savings accounted for 3 percent of the 2005 gross domestic product of $2.5 trillion Includes individuals (including proprietors and partnerships), nonprofit institutions primarily serving individuals, life insurance carriers and miscellaneous entities. Source: U.S. Department of Commerce, Bureau of Economic Analysis.

17 Savings, investment and debt ownership investments OWNERSHIP OF EQUITIES AND CORPORATE AND MUNICIPAL BONDS Equity and debt markets offer individuals and institutional investors the opportunity to participate in the development and expansion of publicly traded companies and municipalities. Equity investments provide an ownership interest in a company through stocks. Debt securities, generally bonds, represent money a corporation or municipality has borrowed from investors and must repay at a specific time and usually at a specific interest rate. Municipal bonds may be tax-exempt. HOLDINGS OF U.S. CORPORATE EQUITIES, ($ billions, amounts outstanding end of year) Percent change, Total $5,30.6 $,900.5 $5,68.5 $7,389.3 $8, % Household sector 6, , ,25.5 6, , State and local governments Rest of the world 2,572.7,335.8, , , Commercial banking Savings institutions Life insurance companies ,053.9, Property/casualty insurance companies Private pension funds,562.,096.7,49.9,69.2, State and local government retirement funds,260.4,056.8,42.5,607.0, Federal government retirement funds Mutual funds 2,836. 2,88.0 3,05.6 3, , Closed-end funds Exchange-traded funds Brokers and dealers Excludes mutual fund shares. 2 Holdings of U.S. issues by foreign residents. Source: Board of Governors of the Federal Reserve System. 2

18 Savings, investment and debt ownership investments HOLDINGS OF U.S. CORPORATE EQUITIES, 2005 Others.6% Insurance companies 7.5% Households 33.5% Public and private pension funds 9.7% Mutual and closed-end funds 25.% Rest of the world 2 2.7% Market value, end of year; excludes open-end mutual fund shares. 2 Holdings of U.S. issues by foreign residents. Source: Board of Governors of the Federal Reserve System. HOLDINGS OF U.S. CORPORATE AND FOREIGN BONDS, ($ billions, amounts outstanding end of year) Percent change, Total $5,332.3 $5,936.4 $6,73.7 $7,386.6 $8, % Household sector State and local governments Rest of the world,5.9,267.0,497.0,75.3 2, Commercial banking Savings institutions Life insurance companies,342.4,449.3,620.2,768.0, Property/casualty insurance companies Private pension funds State and local government retirement funds Federal government retirement funds Money market mutual funds Mutual funds Closed-end funds Exchange-traded funds NA Government-sponsored enterprises REITs Brokers and dealers Funding corporations Holdings of U.S. issues by foreign residents. NA=Not applicable. Source: Board of Governors of the Federal Reserve System. 3

19 Savings, investment and debt ownership investments HOLDINGS OF U.S. MUNICIPAL SECURITIES AND LOANS, ($ billions, amounts outstanding end of year) Percent change, Total $,603.7 $,763. $,898.2 $2,03.3 $2, % Household sector Nonfinancial corporate business Nonfarm noncorporate business State and local government retirement funds Commercial banking Savings institutions Life insurance companies Property/casualty insurance companies State and local government retirement funds Money market mutual funds Mutual funds Closed-end funds Government-sponsored enterprises Brokers and dealers Source: Board of Governors of the Federal Reserve System. 4

20 Savings, investment and debt ownership investments mutual fund investments The household sector holds the largest share of the $6 trillion mutual fund industry, according to the Federal Reserve. Mutual funds represent a substantial part of individuals financial holdings, according to the Investment Company Institute. In 2004 households held about 20 percent of their assets in mutual funds, excluding real estate and other property, up steeply from 6.9 percent in990. See page 44 for further information on the mutual funds sector. MUTUAL FUNDS BY HOLDER, 200 AND 2005 ($ billions) Amount Percent of total Amount Percent of total Household sector $2, % $4, % Private pension funds , State and local government retirement funds Nonfinancial corporate business Life insurance companies State and local governments Commercial banking Credit unions Total 4, , Open-end investment companies. Excludes money market mutual funds, exchange-traded funds and variable annuity funding vehicles. 2 Less than 0. percent. Source: Board of Governors of the Federal Reserve System. 5

21 Savings, investment and debt ownership investments OWNERSHIP OF FEDERAL GOVERNMENT DEBT The buying and selling of government securities is a crucial component of each of the financial sectors. Debt is issued and sold, based on the changing needs of the federal government. The average daily trading volume in U.S. Treasury securities has been rising steadily since By May 30, 2006 it had reached $585 billion, according to the Bond Market Association. ESTIMATED OWNERSHIP OF U.S. PUBLIC DEBT SECURITIES, ($ billions, end of year) Year Total Individuals Mutual funds/ trusts Banking institutions 2 Percent of total Insurance companies Pension funds 3 U.S. monetary authorities State and local governments Foreign and international Other $3, % 6.% 7.6% 5.7% 9.4% 0.4% 6.8% 27.7% 2.5% 997 3, , , , , , , , , Includes mutual funds, money market funds, closed-end funds and exchange-traded funds. 2 Includes commercial banks, savings institutions, credit unions and brokers and dealers. 3 Includes state and local government, federal government and private pension funds. 4 Includes nonfinancial corporate institutions, nonfarm noncorporate institutions and government-sponsored enterprises. Source: Board of Governors of the Federal Reserve System. 6

22 Savings, investment and debt ownership Household assets ASSETS OF HOUSEHOLDS Where people save their money, how much they save and where they look for investment returns is influenced by many factors, including people s appetite for risk, the state of the economy, the investment products available and incentives to save, such as tax advantages and matching funds provided by employers who offer retirement plans. ASSETS AND LIABILITIES OF the personal sector, ($ billions, end of year) Value Percent of total Total financial assets $7,769.7 $8,632.5 $34, % 00.0% 00.0% Foreign deposits Checkable deposits and currency Time and savings deposits 2,02.9 2,38.4 5, Money market fund shares , Securities 2,30.6 7, , Open market paper U.S. savings bonds Other Treasury securities Agency- and GSE 2 - backed securities Municipal securities Corporate and foreign bonds Corporate equities 3, , , Mutual fund shares 23.8, , Private life insurance reserves , Private insured pension reserves , Private noninsured pension reserves, , , Government insurance and pension reserves 595.,95. 3, Miscellaneous and other assets , (table continues) 7

23 Savings, investment and debt ownership Household assets ASSETS AND LIABILITIES OF the personal sector, (Cont d) ($ billions, end of year) Value Percent of total Total liabilities $3,558.5 $6,63. $6, % 00.0% 00.0% Mortgage debt on nonfarm homes,5.7 3, , Other mortgage debt , Consumer credit 60.6,68.4 2, Policy loans Security credit Other liabilities , Combined statement for household sector, nonfarm noncorporate business and farm business. 2 GSE=government sponsored enterprise. 3 Only those directly held and those in closed-end and exchange-traded funds. Other equities are included in mutual funds, life insurance and pension reserves, and bank personal trusts. 4 Includes corporate farms. Source: Board of Governors of the Federal Reserve System. U.S. HOUSEHOLD OWNERSHIP OF MUTUAL FUNDS, (Percent of all U.S. households) 50% 49.0% 49.6% 47.9% 48.% 47.5% 44.0% % % 27.0% 30.7% % 0 households Millions of U.S Households owning mutual funds in 980 were estimated from data on the number of accounts held by individual shareholders and the number of funds owned by households; data for 980 and 992 exclude households owning mutual funds only through employersponsored retirement plans; data for 994 through 2005 include households owning mutual funds only through employer-sponsored retirement plans. The data for 998 through 2005 include fund ownership through variable annuities. Source: Investment Company Institute. 8

24 Savings, investment and debt ownership Household assets FINANCIAL ASSETS HELD BY FAMILIES BY TYPE OF ASSET, Percent of families owning asset Transaction accounts 2 Certificates of deposit Savings Mutual bonds Bonds 3 Stocks 3 funds 4 Retirement accounts 5 Life insurance 6 Other assets 7 Any financial asset % 5.3% 9.3% 3.0% 9.2% 6.5% 48.9% 29.6% 5.3% 92.9% By age of family head, 2004 Under 35 years old to 44 years old to 54 years old to 64 years old to 74 years old years old and over Percentiles of income, Less than to to to to to Percent distribution of amount of financial assets of all families Families include one-person units. 2 Includes checking, savings and money market deposit accounts; money market mutual funds; and call accounts at brokerages. 3 Covers only those stocks and bonds that are directly held by families outside mutual funds, retirement accounts and other managed assets. 4 Excludes money market mutual funds and funds held through retirement accounts or other managed assets. 5 Covers IRAs, Keogh accounts and employer-provided pension plans. Employer-sponsored accounts are those from current jobs (restricted to those in which loans or withdrawals can be made, such as 40(k) accounts) held by the family head and that person s spouse or partner as well as those from past jobs held by either or both of them. Accounts from past jobs are restricted to those from which the family expects to receive the account balance in the future. 6 Cash value. 7 Includes personal annuities and trusts with an equity interest, managed investment accounts and miscellaneous assets. 8 Includes other types of financial assets, not shown separately. 9 Ten or fewer observations. 0 Ranges listed below represent percentiles rather than income levels. A percentile is a statistical ranking point. The 50th percentile represents the midpoint of all values. For example, at the 50th percentile half of the families in the ranking fall above this income level, and half fall below. Note: Latest data available. Based on surveys conducted every three years. Source: Survey of Consumer Finances, Board of Governors of the Federal Reserve System. 9

25 Savings, investment and debt ownership Household assets Percent of families owning asset NONFINANCIAL ASSETS HELD BY FAMILIES BY TYPE OF ASSET, Vehicles Primary residence Other residential property Equity in nonresidential property Business equity Other Any nonfinancial asset Any asset % 66.2% 2.8% 8.6%.5% 8.5% 89.9% 96.8% By age of family head, 2004 Under 35 years old to 44 years old to 54 years old to 64 years old to 74 years old years old and over Percentiles of income, Less than to to to to to Families include one-person units. 2 Ranges listed below represent percentiles rather than income levels. A percentile is a statistical ranking point. The 50th percentile represents the midpoint of all values. For example, at the 50th percentile, half of the families in the ranking fall above this income level and half fall below. Note: Latest data available. Based on surveys conducted every three years. Source: Survey of Consumer Finances, Board of Governors of the Federal Reserve System. 20

26 Savings, investment and debt ownership Educational Plans AND loans EDUCATIONAL SAVINGS PLANS AND LOANS To encourage households to save for college education, states have developed Section 529 college savings plans, named after a part of the Internal Revenue tax code that allows earnings to accumulate free of federal income tax and to be withdrawn taxfree to pay for college costs. Slow to gain acceptance initially, these plans are now growing fast. By the end of 2002, all states had such plans in operation. There are two types of plans: savings and prepaid tuition. Plan assets are managed either by the state s treasurer or an outside investment company. Most offer a range of investment options. There were 8.2 million 529 plan accounts in 2005, compared with 2.4 million in 200, according to the National Association of State Treasurers. DOLLARS INVESTED AND NUMBER OF 529 PLAN ACCOUNTS, Number of accounts (millions) $3.58 $26.85 $45.77 $64.69 $ $ Dollars invested ($ billions) Dollars invested ($ billions) Number of accounts (millions) Source: National Association of State Treasurers. 2

27 Savings, investment and debt ownership Educational Plans AND loans The top 0 providers accounted for 88 percent of 529 plan assets in 2005, according to the National Association of State Treasurers. top TEN 529 SAVINGS PLAN PROVIDERS BY ASSETS, 2005 ($ billions, end of year) Rank Provider Assets American Funds $4. 2 Vanguard Fidelity Alliance TIAA-CREF Citigroup Putnam Merrill Lynch T. Rowe Price Wells Fargo.7 Top 0 Providers 60.8 Source: National Association of State Treasurers. FEDERAL STUDENT LOANS The Stafford Loan Program is the most significant source of federal educational loans, accounting for over 0 million student loans in Stafford loans come directly from the federal government under the Ford Direct Loan Program (FDLP) or through the Federal Family Education Loan Program (FFELP), which makes federally guaranteed loans available through private lenders such as banks. The Stafford program provides subsidized loans (awarded on the basis of need, interest free up to six months after a student leaves college) and unsubsidized loans, which require students to pay interest even while in school. The FFELP made $2.7 billion in subsidized Stafford loans and $2.8 billion in unsubsidized Stafford loans available to students in

28 Savings, investment and debt ownership Educational Plans AND loans TOP TEN ORIGINATORS OF FFELP LOANS, FISCAL YEARS ($ millions) New guarantees Rank Lender name, city, state Fiscal year 2004 Fiscal year 2005 SLM Corporation (Sallie Mae), Reston, VA $4,208.7 $5, Citibank, Student Loan Corp., Pittsford, NY 3, , Bank One, Columbus, OH 3, , Bank of America, Los Angeles, CA 2,44.3 2, Wells Fargo Education Financial Services, Sioux Falls, SD 2, , JP Morgan Chase Bank, Garden City, NY 2, , First Union National Bank (Classnotes), Sacramento, CA, ,4.9 8 College Loan Corp, San Diego, CA 777.4,7. 9 U.S. Bank, Milwaukee, WI,23.7, Access Group, New York, NY,062.0,074.8 Federal Family Education Loan Program, available to the parents of dependent students. Includes Stafford loans (subsidized and unsubsidized) and PLUS loans. Excludes consolidation loans. Source: U.S. Department of Education, National Student Loan Data Service. 23

29 Savings, investment and debt ownership consumer AND business debt Household debt rose.7 percent from 2004 to 2005, compared with 5.7 percent for business debt. Over the 0 years, , household debt rose 2.7 percent, compared with business debt, which rose 73. percent. CREDIT MARKET DEBT OUTSTANDING, OWED BY SECTOR, Year ($ billions) Household sector Nonfinancial corporate business 996 $5,85.8 $3, , , ,90. 3, , , , , ,56. 4, , , , , , , , ,354. Excludes corporate equities and mutual fund shares. Source: Board of Governors of the Federal Reserve System. DEBT GROWTH BY SECTOR, (Percent change from prior year) 20% 5 Federal government Home mortgage Consumer credit Corporate business State and local governments Source: Board of Governors of the Federal Reserve System. 24

30 Savings, investment and debt ownership consumer debt DEBT HELD BY FAMILIES BY TYPE OF DEBT AND LENDING INSTITUTION, Type of debt Total 00.0% 00.0% 00.0% Home-secured debt Installment loans Other residential property Credit card balances Other debt Other lines of credit Purpose of debt Total 00.0% 00.0% 00.0% Home purchase Other residential property Vehicles Goods and services Education Investment, excluding real estate Home improvement Unclassifiable loans against pension accounts Other Type of lending institution Total 00.0% 00.0% 00.0% Mortgage or real estate lender Commercial bank Thrift institution Credit union Finance or loan company Credit and store cards Brokerage Individual lender Other nonfinancial Government Pension account Other loans Less than 0.05 percent. 2 Savings and loan association or savings bank. Note: Latest data available. Based on surveys conducted every three years. Source: Survey of Consumer Finances, Board of Governors of the Federal Reserve System. 25

31 Savings, investment and debt ownership consumer debt Percentage of families holding debt DEBT HELD BY FAMILIES BY TYPE OF DEBT, Homesecured Other residential property Installment loans Credit card balances Other lines of credit Other Any debt % 5.% 43.7% 44.% 2.3% 8.8% 74.% By age of family head, 2004 Under 35 years old to 44 years old to 54 years old to 64 years old to 74 years old years old and over Percentiles of income, Less than to to to to to Families include one-person units. 2 Ten or fewer observations. 3 Ranges listed below represent percentiles rather than income levels. A percentile is a statistical ranking point. The 50th percentile represents the midpoint of all values. For example, at the 50th percentile half of the families in the ranking fall above this income level and half fall below. Note: Latest data available. Based on surveys conducted every three years. Source: Survey of Consumer Finances, Board of Governors of the Federal Reserve System. 26

32 Savings, investment and debt ownership consumer debt Commercial banks CONSUMER CREDIT FINANCE RATES BY INSTITUTION AND TYPE OF LOAN, New automobiles (48 months) 9.05% 9.02% 8.73% 8.44% 9.34% 8.50% 7.62% 6.93% 6.60% 7.08% Personal (24 months) Credit card plans Finance companies New automobiles Used automobiles NA NA= Data not available. Source: Board of Governors of the Federal Reserve System. Year HOUSEHOLD DEBT-SERVICE PAYMENTS AND FINANCIAL OBLIGATIONS AS A PERCENTAGE OF DISPOSABLE INCOME, Financial obligations ratio Household debt service ratio 2 Total Renter Homeowner The ratio of debt payments (estimated required payments on outstanding mortgage and consumer debt) to disposable personal income. 2 The ratio of debt payments plus automobile lease payments, rental payments on tenant-occupied property, homeowners insurance and property taxes to disposable personal income. Source: Board of Governors of the Federal Reserve System. 27

33 Savings, investment and debt ownership consumer debt CREDIT CARDS Bank cards, credit cards issued by banks, are the most widely held type of credit card, with 95.4 percent of cardholders having such cards in Balances on bank cards accounted for 84.9 percent of outstanding credit card balances in 2004, up from 82. percent in 200, according to the Federal Reserve s latest Consumer Finance Survey. Store cards were also popular, with 58.4 percent of cardholders having such cards in All families FAMILIES WITH CREDIT CARDS, Percent of all families with credit cards 76.2% 74.9% Percent of all families with credit card balance Median amount of credit card balance ($000) $2.0 $2.2 Families with credit card balance By percentile of income Less than 20 percent 30.3% 28.8% 20 to 39.9 percent to 59.9 percent to 79.9 percent to 89.9 percent to 00 percent Median amount of credit card balance ($000) By percentile of income Less than 20 percent $. $.0 20 to 39.9 percent to 59.9 percent to 79.9 percent to 89.9 percent to 00 percent dollars. Source: Board of Governors of the Federal Reserve System. 28

34 Savings, investment and debt ownership consumer debt UNDERGRADUATE STUDENT CREDIT CARD USAGE, Undergraduate students Percent who have credit cards 67% 78% 83% 76% Average number of credit cards Percent who have four or more credit cards 27% 32% 47% 43% Source: Nellie Mae. Year CREDIT CARD LOSS RATES, (Percent, end of year) Percent % Year Percent % Total loans and leases removed from balance sheet because of uncollectibility, less amounts recovered on loans and leases previously charged off, at FDIC-insured commercial institutions. Source: Federal Deposit Insurance Corporation. TOP TEN CREDIT CARD ISSUERS BY OUTSTANDINGS, ($ millions, end of year) Rank Company Chase Card Services $35,370.0 $38, Citigroup Inc. 39, , MBNA America 0, , Bank of America 58, , Capital One Financial Corp. 48, , Discover Financial Services Inc. 48, , American Express Centurion Bank 24, , HSBC Credit Card Services 9, , Washington Mutual Bank 8,00.0 9, Wells Fargo 5, ,393.0 Based on responses to CID survey. Includes all credit card debt outstanding. Source: SourceMedia s Card Industry Directory. 29

35 Savings, investment and debt ownership bankruptcy BANKRUPTCY There are three major types of bankruptcies: Chapter 7 is a liquidation, under which assets are distributed by a court-appointed trustee and, if there are no assets, the debt is discharged and creditors receive nothing. Chapter is a reorganization, used mostly for businesses, under which debts are restructured and a payment schedule is worked out. Chapter 3 is a debt repayment plan, under which debts are repaid in part or in full over a period of time, normally three years, under the supervision of a trustee. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Public Law 09-8), the most comprehensive revision to bankruptcy laws in 25 years, instituted a means test that requires people who earn above their state s median income and can repay at least $6,000 over five years to file for bankruptcy protection under Chapter 3, which requires a repayment plan. (Under the previous law more debtors were eligible to file under Chapter 7, which has less stringent provisions.) From 2002 to 2006, business bankruptcies fell.4 percent. Nonbusiness bankruptcies, which account for the vast majority of bankruptcies, rose 20. percent from 2002 to BANKRUPTCY PETITIONS FILED BY TYPE, (Year ending March 3) Year Business Nonbusiness Total ,845,464,96,504, ,548,573,720,6, ,785,68,062,654, ,952,559,023,590, ,292,759,503,794,795 Source: Administrative Office of the U.S. Courts. 30