Banking standards under the federal reserve system

Bibliographic data

Monograph

Identifikator:: 1762969653

URN:: urn:nbn:de:zbw-retromon-142432

Document type:: Monograph

Title:: Banking standards under the federal reserve system

Place of publication:: Chicago

Publisher:: A. W. Shaw Company

Year of publication:: 1928

Scope:: xxxviii, 420 Seiten

Digitisation:: 2021

Collection:: Economics Books

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Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Part III. Correlated series for all Member Banks by districts

Collection:: Economics Books

rr Hh 11 SERIES CORRELATED WITH NET EARNINGS THE net earnings of a bank, according to the accounting pro- cedure followed by the Federal Reserve Board in reporting the operating details of member banks, are the difference between the gross earnings and the total expense. That is, they are resi- duals, the amounts depending not upon the absolute size of the gross earnings and of the total expense but rather upon the dif- ference between them. For instance, a rate of 2%—relative to earning assets—may come about by virtue of a gross earning rate of 8% and a total expense rate of 6%, both expressed in terms of earning assets, as in the case of the banking experience of Dallas in 1922, or from a gross earning rate of 6% and a total expense rate of 4%, as, for instance, in the case of Philadelphia in 1925. Accordingly, if 8—~6=2, and 6—-4=—12, conversely, 6+ 2=38, and 4 -}- 2=26. For a single bank, or for a group of banks treated as a unit, if gross earnings are large, other things being equal, net earnings are large, and if they are small, other things being equal, net earnings are small. Conversely, if total expenses are large, other things being equal, net earnings are small; if they are small, other things being equal, net earnings are large. But such simple relations do not obtain when averages, relating to any one or to all of the variables, are dealt with. This fol- lows because “the other things” which are supposed, as above, to be equal are unequal. For instance, large gross earnings are at times and at places associated with small, and at other times and places accompanied by large total expense, and vice versa. Conversely, large total expenses are at times and at places ac- companied by small and at other times and places by large gross earnings, and vice versa.! Accordingly, when data for individual banks, or for groups of banks taken as a unit, are combined with Em 1 For a graphic summary of the relations between ratios of gross earnings and of total expense for member banks by districts, see Chart 33, page 130. 52

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