76

BANKING STANDARDS
TABLE 54

COMPARATIVE PERCENTAGE AMOUNTS OF DEVIATION FROM DISTRICT
LEVELS AND NET YEAR-TO-YEAR CHANGE IN RATIOS OF
Gross EARNINGS To EARNING ASSETS

endif

DIFFERENCES FROM DISTRICT AVERAGES, 1919-1925

Sien

Number of
Cases

Percentage | Average
Groups Percentage

31

Average

6.30

8
1x
12

10.00 and over
5.00 to 10.00
Under =.00

12.78
| 6.09
2.40

~~

Under 5.00
5.00 to 10.00
10.00 and over

2.14
7.12
11.21

Average

4.24

NET PERCENTAGE
CHANGE FROM
YEAR TO YEAR

- 3.78

- 6.52
— 6.01
4+ 0.08

+ 4.40
+ 4.96
+11.06

+ 5.10

of gross earnings, their composition depending primarily upon the
demand for bank accommodation and the attractiveness of the
investment market. As the demand for loans increases, interest
and discount rates tend to rise; as it decreases, they tend to fall.
High rates of interest have the effect (1) of discouraging borrowers
 from placing new and renewing old loans and (2) of attracting
 capital. Either or both tend to lower interest rates.
Contrariwise, low rates of interest stimulate borrowing and the
placing of loans in more attractive fields. Both conditions tend
to increase interest rates. Moreover, there is a continuous flow
of capital, in the form of loanable and investment funds, into and
out of different markets (geographical but overlapping), which
fact tends to equalize interest rates at the levels common to such
markets because of the type of business transacted, risks and expenses
 incurred, and so forth. It is this process of equalization
which is observed in the above phenomena. Gross earnings—interest
 received, for the most part—regress to type, the type being
the average level peculiar to each district. And further, the
amount of regression—net percentage change—varies directly
with the extent to which the equilibrium is disturbed.
Moreover, the gross earnings of a bank or of a group of banks
depend upon the composition of its earning assets—matters under