What is a Deposit (and Why Does It Matter)?

Abstract

Deposit-taking is an ancient business or profession. But far from being a term of art, “deposit” and “deposit-taking” has not always been defined. Recent developments, both in the legislation and industry practice, mean that the concept of a deposit needs to be reviewed.

This article looks at the history of deposit-taking and the concept of a deposit. It then considers the legal definitions of deposit-taking and banking business, under the common law and statute. The middle section of the paper examines the legal concept of a deposit, its character and implications. The paper then concludes with a discussion of the regulation of deposit-taking, and the practical implications of a modernisation of the concept of deposit for those regimes.

Why is the definition of deposit and deposit-taking important? Deposit-taking is subject to a specialist and interventionist regulatory regime in most countries, including in Australia.

Whether a product is a deposit has significant implications for customers (such as whether depositor protection regimes apply) and for issuers (such as what types of regulatory requirements, for example capital adequacy, apply). For these reasons, the definition of concepts of deposit and deposit-taking has real-world implications.