, 1922-06-30
Index of Business Prosperity

RANKING PROSPERITY it is commonly as
II sured bears a welldefined relation to general
business prosperity. A Study of the condition of
the banks of the country, compared by geo
graphical districts should, therefore, give some
indications of the relative position
of the business cycle in different types of
the combined resource and liability statements of
banks is Indicative of the general condition of
banking. Important among such items are loans
and discounts demand deposits and borrowings.
Loans and discounts significantly reflect bank as
sistance to the business community. When bust
ness is active, expanding loans and discounts are
such as our own a relatively large amount Of bank
assistance is needed when n relatively large vol
ume OF goods is being regularly produced and mar
keted. BUT it does not follow that loans are or
can be reduced in proportion as business activity
declines.
The recent movement of loans and discounts
would seem 10 indicate improving business condi
tiOns in some communities prior TO the call of last
March For instance, loans Tor reserve city banks
in the Pacific region have recovered considerably
since last September, and slight improvement in
cities of New England, the middle west and the
south can be read in the figures since the end Of
last year.
1t is a well recognized fact that there is a close
correspondence between the deposits and loans of
commercial banks. A loan TO a customer in most
cases tends TO swell his deposit account proportion
ately. In time of economic stress and readjustment
it is not uncommon to find the relation ordinarily
obtaining between deposits and loans considerably
wrenched. After June, 1920, deposits began a con.
siderable decline| decline which has been greater
than in the case of loans. Little difference between
the progress of decline in city and country banks is
observable, though it is noteworthy that the decline
among the country banks began earlier and has
been somewhat more consistent In some districts
among the city banks, the recession has been inter
rupted by temporary recoveries particularly in the
eastern district, which includes New York.
No doubt this difference between city and com-
try banks was largely due to the relatively greater
activity of trade in cities, by which the flow of de-
nGifS N 4 n N rnoInfnina1 auon IN 1nnro~CfNN
and thus provides the means for meeting with
drawals of funds and maturing obligations for
money borrowed. On the other hand, country banks
had relatively small amounts of cash coming III by
way of current deposits and loan payments once
the period of ,deflation was under way.
With regard to the recent movements Of the de-
posit figures as an index of business conditions, the
conclusion seems plain that there has been more i'm
provement in the cities than in the rural districts
On the whole, demand deposits in city banks have
been increasing for the last six months, which is
not so generally the case among country banks. The
Harvard curve began about ten months ago to indi-.
cate improved business conditions, and city deposits
seem to have followed suit after a lag of a few
months. On all sides is heard the statement that
conditions in agricultural communities are improve
ing. Perhaps an increase in country bank deposits
can be expected to reflect this within the next few
months.
The increase of bank borrowings for months after
the depression began is indicative of the strain
imposed upon the banking community in meeting
the demands of liquidation. Indirectly such an ex-
pohoAo VI AANhNt to aCcid III
of a banking system which keeps power in reserve
to meet such unusual shocks.
The hardship that the period of liquidation has
occasioned in agricultural communities is directly
reflected by the relative borrowings of banks in
such communities. Borrowings of country banks
increased up to the end of the year, 1920. More
over, the decline of their borrowing since that time
has been only 35 per cent against the decline of 20
per cent for all banks. Decrease in the amount
of borrowings continues to be the rule This is a
condition., if course, that is to be expected as coin
cident with easier money conditions, and precedent
to a sustained business revival.
Deposits in recent months have shown more tend
ency toward improvement than have loans. 1t ap-
pears that the process of liquidation has put com
mercial firms in possession of funds for meeting
current expenses without resort to borrowing.
In general, liquidation in city banks began earl
Ter and moved toward completion more rapidly than
in country banks, though liquidation seems still to
be incomplete as far as borrowings are concerned.
That country banks received considerable aid from
the rest of the banking system during the period
of stress is evidenced by the fact that their borrow.
ings increased rapidly for several months after the
turn in business conditions in the spring of 1920.
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