Paper Across the Bar

Locked Out on May Day

Eli: On the first of May, 1970, the main banks in the Republic of Ireland didn't open. They'd announced it themselves, in a notice: "it is with regret that these banks must announce the closure of all their offices in the Republic of Ireland … from 1 May, until further notice." Talks between the banks and their staff's union had broken down. Customers came to locked branches, their deposits on the other side of the door. And until further notice ran to more than six months.

Mara: Our listener wants to know what happened when every bank in Ireland closed for six months in 1970, and how people kept paying each other. Today's angle is the ledger illusion of tavern banking.

Eli: It runs through a supermarket till, a department store's accounts office and a lot of pubs, all the way to the day the banks open and six months of paper gets counted. And nobody has ever measured how many of those cheques passed through several hands before anyone cashed them.

Mara: It didn't start in May, though. In February the bank officials' union began a work-to-rule in protest, staff doing exactly what the rules required and nothing more.

Eli: The banks answered by cutting staff salaries by a quarter and hiring temporary workers. By May, the talks were dead. And that froze cheque clearing: each cheque going back to the bank it's drawn on, checked against the money in that account, before any balance moves.

Mara: So a cheque's just a promise until the banks swap it and settle it.

Eli: And that check was the safety net. Most payments ran on cheques. Now clearing and payments between banks had both stopped.

Mara: Plenty of chequebooks, and nobody testing whether the money behind them existed.

Eli: So the real test is whether trust in pubs and shops could do a clearing bank's job without the whole thing coming apart. And Mara found the shutdown wasn't as total as it sounds.

The Limits of the Open

Mara: The premise needs one fix: not every bank closed. The ones that shut that May were the Associated Banks, the main clearing banks that ran ordinary current accounts, with six hundred and forty branches across the country. They held about sixty percent of deposits. The non-associated banks stayed open, and so did the Post Office Savings Bank. But the non-associated banks held about a fifth of deposits, had few branches, mostly in Dublin, and weren't full members of the clearing system.

Eli: And the Post Office couldn't offer full current accounts.

Mara: One research paper found many smaller businesses and individuals "didn't have the resources to use non-associated banks, which had a very limited physical footprint, or to use banks outside of Ireland." Big firms could lean on banks in Northern Ireland and Britain. Everyone else faced the hard number: more than eighty percent of the money held in bank deposits had become unavailable—eight in ten, out of reach. But Ireland had done a version of this before: in 1966 a bank strike ran about three months and shut all but seven of the country's commercial bank branches.

Eli: The Financial Times wrote then that cheques became "a kind of legal tender, passing happily from hand to hand, pending the reopening of the banks."

Mara: A cheque spent like a banknote. That only works if whoever takes it believes it's good.

Eli: The paper had an explanation. It said this "reflects the strong personal relationships within a small community where no one is really anonymous and two people who are strangers to each other rarely fail to find that they have a mutual friend."

Mara: So by 1970 the habit was already there. What 1966 never tested was paper that had to keep moving for twice as long, with the few open banks far too small to take the strain.

Cash at the Tap

Eli: That strain landed on people like Maeve Binchy. Her supermarket would take a personal cheque, on its own terms. In her words: "Our supermarket only took personal cheques made out for £10 each time." That's about thirteen U.S. dollars at 2026 exchange rates. She needed it for housekeeping, so the shop handed cash back, ten pounds at a time. And she was careful: "I kept a careful account of cheques I cashed and most of the ones I wrote to pay bills."

Mara: Some of the cash coming back over that counter was British. Sterling notes passed one for one with the Irish pound. British money in circulation in Ireland rose about eightfold, until it was roughly a quarter of all the currency around.

Eli: Ten pounds covers groceries, not a salary. In May 1970 people climbed three flights of stairs at Dunnes Stores to the Accounts Department, hoping to cash cheques. A schoolteacher timidly held out his £45 monthly salary cheque. A cashier from a manufacturing firm brought one for hundreds of pounds, for the wage packets. One official said: "They are mostly strangers to us, and we just have to play it by ear in deciding whether to accept a cheque."

Mara: An accounts clerk doing a bank manager's job by ear. And it ran the other way too: retailers sitting on cash swapped it for cheques, so firms could keep paying wages in cash. It's close kin to trade credit, where one business lets another pay later.

Eli: The widest net, though, was the pubs. One count puts roughly twenty-three thousand pubs and shops working as stand-ins for banks. In Balbriggan, the publican John Dempsey dealt with his regulars and turned strangers away. Village publicans accepted cheques that could not be cleared soon and swapped customers' deferred payments with one another, acting as financial intermediaries. A publican quoted in Malte Krüger's research said he was "holding cheques for thousands of pounds, but I'm not worried." And: "I suppose I've been able to keep a few local factories going."

Mara: The economist Antoin E. Murphy, who studied the strike, found that judging risk "was based on a vast pool of information available to transactors on the credit-worthiness of other transactors." A local trader could know a customer better than any bank clerk did.

Eli: So the doors that shut on the first of May didn't stop the money. It moved through Binchy's ten-pound cheques and Dempsey's bar. What nobody had was a running total; Binchy's own careful account was the nearest thing to a statement. How much of that paper had money behind it, nobody could see yet. Trust can vouch for a person. It can't tell anyone their balance.

Signed on the Back

Mara: Here's how a cheque became money. One written to a grocer could go on to the grocer's supplier, then to another business, then onward. Each holder signed the back and handed it over. That's repeat endorsement: signing a cheque over to the next person, again and again, without anyone cashing it. A visitor from England paid with a cheque on his English bank. Back home, out of curiosity, he rang the bank. They told him it had been paid in, "but that on the back were several signatures."

Eli: One crowded cheque doesn't show how many travelled that far.

Mara: No. The Central Bank of Ireland reported most cheques stayed with the people they were written to; passing them on was rarer. The stranger part is what people wrote against. Antoin Murphy noted cheques were drawn "not against known credit accounts or allowed overdraft limits, but against the value of other uncleared cheques" or a person's sense of their own creditworthiness. Take in a cheque for five hundred, write one for nine hundred, and the gap is an implicit overdraft: borrowing nobody approved.

Eli: And the shops were tiring. A Central Bank survey found about sixty percent of retailers unsure how long they'd keep taking cheques on the closed banks, or ready to stop if it dragged on.

Mara: Cash itself was thinning. By mid-May the Irish Times was warning that many firms could soon find it "nearly impossible to pay their staffs in cash." The longer it went, the harder it was for households and businesses to know where they stood. By the end, the Central Bank estimated the uncleared cheques at five billion pounds, almost three times the size of the economy. Other accounts put it nearer three billion.

Eli: Billions in promises, and nobody holding the ledger.

Mara: That's read two ways. One runs through Antoin Murphy, Michael Fogarty and publicans like John Dempsey: local knowledge sorted good paper from bad, and trade and credit carried on with little disruption and few defaults.

Eli: Mara, the other reading runs through Malte Krüger. He concluded the effects of the 1970 strike were limited, but that without a proper settlement mechanism "risks were rising for almost all transactors." In that reading, the strain fell hardest on people without cash or connections. One small building contractor cut his workforce from thirty men to ten, and stopped building from Wednesday to Friday each week just to scrape together the payroll.

Mara: What would settle it is how much of that paper was good, and the answer sat in safes and tills, waiting for the banks.

Drawn by Luck

Eli: On the twenty-first of October, 1970, bank staff went back to work behind locked doors, clearing six months of arrears with the public kept out. In mid-November the branches opened, and Maeve Binchy came to the counter with her careful account. The manager told her the figure. She said: "My over-draft is what? I don't believe it, I simply don't believe it." An unauthorized overdraft: her account had sunk below zero, with nobody agreeing to it, while nobody was counting.

Mara: And still no running balance.

Eli: Months without a bank ledger seem to have let debt pile up out of sight. And it caught even a careful spender like Binchy off guard.

Mara: And it wasn't only households. Clearing the backlog was reported to have taken until February 1971. At Bank of Ireland's O'Connell Street branch in Dublin, in November 1970, officials faced so many cheques they had no basis to choose between them. So they held a lottery. One cheque drawn for return belonged to the shipping firm Palgrave Murphy, for about eighteen thousand pounds, owed to the Dublin port authority. That's dishonouring a cheque: the bank refusing to pay and sending it back. And the bank's sums were wrong. Once the backlog was processed, the account was actually in credit.

Eli: A firm with money in the bank, bounced by a draw.

Mara: In court, a bank witness called it "a random selection which was intended to be as equitable as possible under the circumstances." Around the country, bankruptcies and liquidations ran abnormally high, and most firms took on more bad debts than usual.

Eli: And some paper had nothing behind it. Albert Luykx had lodged a large cheque. After the reopening his bank told him it had bounced, "refer to drawer": the account it was drawn on couldn't cover it.

Mara: Months of passing for money, undone by one line from a bank.

Eli: The doors were open, the paper was counted, and whoever held a bad cheque was left to chase it. Mara has the final tally.

The Uncounted Tally

Mara: Not every bank in Ireland closed. The main clearing banks shut for about six and a half months, and people paid each other with cheques for groceries, services, even wages, cashed and passed through shops and pubs on the strength of who knew whom. A Central Bank and ESRI survey found "the level of economic activity continued to increase, though at a reduced pace." Some credit risk did come home, but one review found it "was not on such a scale as to be systemic": particular people and firms were hurt, not the banking system's solvency.

Eli: And Binchy credited the people who'd done the cashing. At the reopening, she told her manager she felt he was riddled with guilt for having left the whole country to cash cheques in pubs.

Mara: The cost turned up afterwards. In mid-February 1971, Michael Fogarty reported, the Fraud Squad was investigating 750 fraud cases arising largely from the dispute, ten times its normal load. Most of the sums were small. On that first of May, customers met a notice and a locked door. What grew in its place carried a country for six months, at a price nobody has fully counted.

Eli: No default rate for all that paper was ever given.

Mara: So, three signals to watch. Whether bank or Central Bank records ever report how much of the backlog went bad. Whether clearing-house archives show how many cheques truly travelled through several hands. And whether verified totals settle that backlog at three billion pounds or five.

Eli: Dig into Cheque clearing.

Mara: And stay with us on economy.

Eli: Thanks for listening. I'm Eli.

Mara: And I'm Mara. Until next time.