26

BANKING STANDARDS

TABLE 150

NATURE OF CORRELATION IN PERCENTAGE DEVIATIONS AND YEAR-TO-YEAR
 CHANGES IN DIFFERENT SERIES PAIRED

SERIES CORRELATED

Independent Variables

Dependent Variables

Loans and Discounts to Earning!
Assets...................
Total Expense to Earning Assets|

Total Expense to Earnins
P30 0
Loans and Discounts to Earn
ing Assets... ... .. ..

Total Deposits to Earning
Assets...................
Total Expense to Earning Assets

Total Expense to Earning
ASSES. ... oe vunigs engi]
Total Deposits to Earning
Assets.

NATURE OF CORRELATION

Differ- | Changes |
ences from
from Year
District , to
Averages Year

Differences

from
Country’s
Yearly
Averages

Positive

Positive

Positive
Positive
Negative | Negative®
Neezative*! Positive®

Positive*
Positive*

*Low.

propriately measured. In general, therefore, relatively large
loans and discounts seemingly operate to produce relatively large
gross earnings, while relatively large total deposits operate to reduce
 them. Accordingly, gross earnings are functions of at least
two conflicting variables.
If no account is taken of conditions other than variable ratios
of loans and discounts and of total deposits, then the amount of
average gross earnings for the member banks in a given year and
district depends upon the relative influence of each of these factors.
 It is of little avail to attempt to measure, other than in
general terms, their respective causal effects. Indeed, it is probable
 that they are related, both being effects of causes latent in
the state of business at given times and places. Accordingly, we
shall not attempt a separate appraisal of the causal influences of
either of them upon ratios of gross earnings.®
If other things, as respects total expense, are held to be constant,
 then relatively large ratios of loans and discounts to earning
 assets and relatively small ratios of total deposits to earning
assets should be associated with relatively large net earnings.
Whether operating expenses do remain constant with variable
conditions respecting loans and discounts and deposit items, therefore,
 is pertinent to the subject matter of this chapter. The relations
 discovered, and developed at length in previous chapters,
are summarized in Table 150.
"2 See. however, Table 107, page 177, and the accompanying discussion.