Business Measurements: Money and Banking, Failures, and the Stock Market
Rightly understood, measurements of credit as found in money rates and various indexes of banking are of great importance to the business forecaster. Let us consider some of the more commonly used indexes of this sort.
Under this head we find two broad general indexes which best represent the total volume of bank credit outstanding. These are the total loans and discounts of the member banks of the Federal Reserve system and the total bills and securities of the Federal Reserve Banks.
Total loans and discounts . This item represents the total loans of the member banks, including both the collateral loans on government securities and on other stocks and bonds, and other loans which are largely "commercial" (Fig. 15).
The limitations of the total loans and discounts of the member banks as a measurement of bank credit are these: (1) The figures do not represent the loans of all banks, but only of member banks. (2) As to their bearing upon business conditions proper, we must note that the loans cover a large amount of speculation. (3) They are not very sensitive in reflecting trends in the business cycle; like most banking data they rather lag in the procession of business phenomena. For example, they touched bottom in the middle of 1922, although business reached its low point in 1921. In fact, the total loans and discounts show very little cyclical swing.