In truth, the gold standard is already a barbarous relic. All of us, from the Governor of the Bank of England downwards, are now primarily interested in preserving the stability of business, prices, and employment, and are not likely, when the choice is forced upon us, deliberately to sacrifice these to the outworn dogma, which had value once, of k3. I 7s. iod. per ounce.' J. M. KEYNES (I923), p. I72 * An extended version of this paper is available from the Harvard Institute of Economic Research as Discussion Paper Number i oo8. An earlier version was presented at Yale, Brown and Stanford Universities, to the Harvard-MIT Joint Econometrics Seminar, to the Seminaire d'economie monetaire international (Paris), and to a meeting of the International Finance Section at Princeton University. We are grateful to seminar participants, to Peter Kenen, Charles Kindleberger and Peter Temin and to two referees of thisJouRNAL for comments. We acknowledge the permission of Her Majesty's Stationery Office to quote materials in the Public Record Office. Mark Watson thanks the National Science Foundation for financial support.

This article attempts to account for the exceptional stability exhibited by the banking systems of Britain, Canada, and ten other countries during the Great Depression. It considers three possible explanations of stability—the structure of the commercial banking system, macroeconomic policy and performance, and lender of last resort behavior—employing data from 25 countries across Europe and North America. The results suggest that macroeconomic policy—especially exchange-rate policy—and banking structure, but not lenders of last resort, were systematically responsible for banking stability.

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