Full text: Banking standards under the federal reserve system

357 
sought an explanation for the phenomena discovered and meas- 
ured in other parts of this study. 
Given such interdependence, then, how are the uniformities and 
tendencies in, and the correlations between, series of banking data 
to be explained? The conditions out of which they arise may be 
sketched broadly and generally, attention being given primarily 
to the national aspects of our banking system and money market. 
The yearly fluctuations in business, roughly synchronizing by 
districts, give rise to sympathetic fluctuations in the demand for 
loanable funds. These are available in a market which is both 
national and international. Business, tending relatively at a 
given time to be in the same stage of activity the country over,!® 
requires for its financing the same sort of banking service—ex- 
pansion or contraction of loans, as the case may be. Banks in- 
dividually are free in a competitive market to use their resources 
as demanded. Moreover, they share competitively in the sources 
of funds—stocks of gold, savings, interbank borrowing, and the 
rediscount privilege. Being free, in both a loan and investment 
market to convert their earning assets into the form required 
to administer to business needs, and business needs tending to 
fluctuate simultaneously from year to year in different parts of 
the country, it is but natural to find that, with respect to the 
proportions of loans and discounts to earning assets, for instance, 
districts, relative to their own long-time levels, are similarly 
placed at the same time. 
But the state of business changes from year to year—not hap- 
hazardly, but with an approach to uniformity the country over. 
This fact is established, measures of general business oscillations 
being found in the fluctuations of bank debits. With these changes 
come different demands for the services of banks, the form of 
their resources being adjusted to suit business needs. If a rela- 
tively larger proportion of their earning assets is required in the 
form of loans to finance business expansion, then loans are ex- 
panded. On the other hand, if the earnings of business have 
made it possible for them to finance their needs without recourse 
to banks, then, relatively, the proportion of earning assets in the 
form of loans decreases and that of investments increases. That 
is, the proportions of the earning assets of banks or groups of 
banks by districts, represented by loans or by investments, tend 
18 Account here is taken only of the cyclical and “long-time” uniformities. 
INTERPRETATION 
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