Understanding Bank Holidays Around the World
The current understanding of bank holiday is almost synonymous to federally recognized holidays. However, there is a stark difference between a federal and a bank holiday. There are days that can be considered a federal and bank holiday but there are also days considered as federal holidays but not a bank holiday. In a bank holiday, banks are closed and they are unable to serve their clients even though it’s a business day. During bank holidays, Wall Street and other stock market are closed. The roots of banking holidays around the world differ but the term has been adapted almost universally as a declaration of public holiday.
Historical Perspective of Bank Holidays
Declaration of US Bank Holidays
In US, there are two reasons a financial institution can declare a bank holiday. The first reason is the traditional observation of federal holidays. Since the various government offices are closed on that day, banks and the stock market are also closed. The only exception is the Inauguration Day or on the day the President is sworn into office. This is a federal holiday but only observed in certain counties in Washington DC. The primary reason for this declaration is to prevent heavy traffic. Individual states are not required to follow every federal holiday but most observe these dates.
The second reason for the declaration of bank holidays is to prevent “bank run.” In gist, a bank run happens when too many clients withdraw their money from the bank. This act easily depletes the resources which could close the bank for good. The reason for the “bank run” is often to panic. When clients sense that the bank is not doing well or the stock market is about to crash, clients rush to withdraw their funds. Before this scenario happens, the government steps-in to gain control of the insolvent bank. The bank goes into banking holiday to give the government time to reorganize. This government authority on closing insolvent banks is based on Emergency Banking Act of 1933. This authority is no longer used but instead exercised through Federal Deposit Insurance Corporation.
UK Banking Holidays
In England, the banking holidays were specified by law in 1871. Called the Bank Holiday’s Act of 1871, this law minimizes the number of bank holidays. Before the Bank Holiday’s Act of 1871, banks observe 33 days of holiday in dedication to various saints. After the law was enacted, the number of bank holidays was reduced to four namely; Easter Monday, Whit Monday, First Monday of August and Boxing Day or St. Stephen’s Day. While never declared, Christmas and Good Friday are still observed because of tradition.
More holidays were introduced but they were ultimately regulated through Banking and Financial Dealings Act 1971. This act creates a “Royal Proclamation” that specifies the holidays on that year. The declaration is more than a formality since this declares the different holidays that should be observed in different countries under the crown and the adjustment of holidays. If the holiday falls on a weekend, it is moved on the nearest Monday.
Customs and Traditions as Basis of Bank Holidays
Clearly, banking holidays in every country is never the same. Since each country observe different traditions and customs, the declaration of holidays are also different. A good example is in UK where various territories observe different holidays. Scotland observes January 2 as a bank holiday while other territories (England and Wales, Republic of Ireland, Northern Ireland) do not observe this as a holiday. Scotland also observes St. Andrews Day (November 30) and their Summer Bank Holiday is on first Monday of August while other territories observe this day on Last Monday of August.
List of Bank Holidays:
United States of America:
New Year's Day - January 1
Martin Luther King Jr Day - January 18
President's Day - February 15
Memorial Day - May 31
Independence Day - July 4
Labor Day - September 6
Columbus Day - October 11
Veterans' Day November 11
Thanksgiving Day - November 25
Christmas Day - December 25
England and Wales
New Year’s Day – January 1
Good Friday
Easter Monday
May Day Bank Holiday (First Monday of May)
Spring Bank Holiday (Last Monday of May)
Summer Bank Holiday (Last Monday of August)
Christmas – December 25
Boxing Day – December 26
Canada (Common holidays observed in every territory)
New Year’s Day – January 1
Good Friday
Canada Day – July 1
Labor Day – First Monday of September
Christmas Day – December 25
Impact of Bank Holidays
Bank holidays have a huge impact in various industries. Speculation on a specific currency used in a country during a bank holiday is extended and reaction is usually based on the events that happened. Aside from Forex Exchange, the stock market is also on hold which means business transactions are temporarily suspended. The window of transaction could provide some advantages or disadvantages on other countries that are not observing bank holidays. Businesses are also affected during bank holidays. While retailers can expect increase of sales during that day because of the increased number of shoppers, wages will also increase. Employees will have to be paid extra for coming in during the holidays.
Bank holidays are strongly embedded on the country’s tradition. But it has a great effect not only on the country’s economic setting but also worldwide.