By doing so, they were shouldering the risk until the banks reopened. During the Irish dispute, people accepted cheques in lieu of payment as IOUs. Until a cheque settles, the payee faces counterparty risk, should the signatory to the cheque (payer) not honour it. Cheques were generally accepted as payment because the cheque’s recipient (payee) expected it would clear and settle within days of presenting it at a bank. And there was no practical means for the Central Bank of Ireland to get more notes into the economy.ĭenied access to a functioning banking system, Irish people continued writing each other cheques. Without the main banks open to channel it to where it was needed, though, shortages emerged. Cash already circulating continued to be used for payments. With all the main Irish banks closed, interbank payments ground to a halt. In addition to material in the Bank’s Archive, there is a limited yet rich set of near‑contemporary sources that give further insights: the Irish government-commissioned inquiry into the dispute (Fogarty (1971)) the Central Bank of Ireland’s survey of its economic effects (CBI (1971)) contemporary newspaper articles and an academic study ( Murphy (1978) ). We wondered how valid the Irish comparison is. By contrast, Ashcraft (2005) shows that the economic costs of closing even healthy banks can be high. So when banks in Greece were closed for three weeks last summer, some commentators pointed to Ireland in 1970 to show that a modern economy can function without banks. In short, banking in Ireland was disrupted for nearly a full year.ĭespite this, the Irish economy did not implode (see Chart). Furthermore, although the banks reopened their doors in mid‑November, it was early 1971 before banking business was back to normal. Formally, it lasted around six months.įigure 1: Announcement of the Irish banks’ closure, 1970Īs per the Irish Banks’ Standing Committee notice, even before complete closure of the banks, their staff had been working short hours, and a backlog in cheque clearing had built up throughout April. But the 1970 “lock‑out” of bank staff was notable for being the longest. Nor was it the last: there was a further significant strike in 1976. It was not the first time the Irish banks had closed: there had been strikes in 1950. The industrial dispute closed most of the Irish banking system in May 1970 (Figure 1). Using material in the Bank of England’s Archive relating to the 1970 dispute, we shed light on how halcyon those days really were. Independent (2015), FT (2015)) recalled how, previously, the Irish public ingeniously circumvented the banking system and kept economic activity going. When Greek banks closed temporarily last year, some commentators (e.g. What happens when a country’s banking system shuts down? Just how damaging is it to the economy? During the 20th century, the Republic of Ireland’s banking system suffered industrial disputes, some of which caused the main banks to close for several months.
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