Abstract
This chapter describes the Banking School’s theory of crises, which it linked to interest rates and the flows of investment capital that they incentivise. It examines data from the Bank of England and a newly collected series of American interest rates to conclude that there is some justification for the Banking School’s conclusions concerning crises. The relationship between deposits, Bank Rate and short-term interest rates is examined. The correlation between the equalisation of nominal interest rates in America and the United Kingdom and the incidence of crises is tested. The relationship between long-term interest rates and gross capital flows is explored and it is concluded that for the most part mechanisms involving long- and short-rates are separate.
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