1 Lombard Street

Pubs in Bank

pubU.S. President Barack Obama toasts with first lady Michelle Obama in Ollie Hayes Pub in Obama's ancestral home in Moneygall May 23, 2011.REUTERS/Maxwell's

Banks are the focus of so-called systemic risk.

It's assumed, probably rightly, that the global economy would stop functioning if banks suffered losses heavy enough to shut them en masse.

But what's right for the global economy isn't necessarily right for an individual country.

As the Bank of England's Bank Underground blog notes, almost the entire banking system of Ireland went on strike after an industrial dispute in 1970. The strike lasted nearly six months, yet the economy escaped unscathed.

People used cheques to manage large payments and, while the banks were closed, risk of default on the cheques was shouldered by neighbourhood pubs.

Here's the Bank of England's Ben Norman and Peter Zimmerman:

How did payees manage this risk for such a prolonged period? Notoriously, local publicans were well-placed to judge the creditworthiness of payers. (They had an informed view of whether the liquid resources of would-be payers were stout or ailing!)

Ireland Bank StrikeFor example, John Dempsey, a publican in Balbriggan, near Dublin, was “…holding cheques for thousands of pounds, but I’m not worried. The last bank strike went on for 12 weeks and I didn’t have a single ‘bouncer’. … I deal only with my regulars … I refuse strangers. I suppose I’ve been able to keep a few local factories going.”

Around £3 billion ($4.5 billion) changed hands this way while the banks were shut, according to the BoE figures, and not all of it went through the pubs. Some went through local retailers and other businesses.

Source: uk.businessinsider.com
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