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BANKING STANDARDS 
TABLE 152 
NATURE OF CORRELATION IN PERCENTAGE DEVIATIONS AND YEAR-TO- 
YEAR CHANGES IN DIFFERENT SERIES PAIRED 
— — 
SERIES CORRELATED 
Independent Variables 
Dependent Variables 
Gross Earnings to Earning 
Assets. ................. 
Net Earnings to Earning As- 
ante 
Net Earnings to Earning As- 
SOLS. on ov wis 8 mis 8 in 8% win 
Gross Earnings to Earning 
Accate 
Total Expense to Earning 
Assets, conn civiirinin 
Net Earnings to Earning 
Assets. ei 
Net Earnings to Earning 
Assets. ..........co0nn. 
Total Expense to Earning 
Assets 
*Low. 
NATURE OF CORRELATION 
Differ- | 
ences 
from 
District | 
Averages 
Changes 
from 
Year 
to 
Year 
Differ- 
ences 
from 
Country’s 
Yearly 
Averages 
| Negative* 
! None 
None | Positive  Negative® 
Positive | None | None 
- neni. 
earnings and variable total expense (positively correlated) cor- 
related with variable net earnings. It is apparent from this table 
that the probable causal order leading to high or to low net earn- 
ings runs from gross to net earnings. rather than from total expense 
to net earnings. 
Now, from what has been said, it is known that net earnings 
are positively correlated with gross earnings and indifferently 
correlated with total expense. But ratios for both of these series 
are positively correlated with loans and discounts; while those 
for total expense are indifferently correlated with deposits. 
Accordingly, it is of interest to observe the relations, if any, 
between loans and discounts and deposits and net earnings. The 
relations are given in Table 153. 
In view of the relations between variable ratios of loans and 
discounts and of variable ratios of deposits to earning assets and 
ratios of net earnings, as disclosed in Table 153, it is desirable 
again to set up the simple relation between gross earnings, total 
expense, and net earnings. This runs as follows: gross earn- 
ings—operating expenses=net earnings. Quantitatively, the 
ratios may stand at any figures, but the ones which are used for 
purposes of illustration are 6—4=z2. 
It has been found that relatively large ratios of loans and dis- 
counts accompany relatively large ratios of gross earnings. 
Accordingly, if 6% is the average gross earnings ratio for series 
with average ratios of loans and discounts to earning assets,