Bailment Ailment: An Analysis of the Legal Status of Ordinary Demand Deposits in the Shadow of the Financial Crisis of 2008

43 Pages Posted: 1 Dec 2014

See all articles by Timothy Harker

Timothy Harker

United States Attorney's Office - Eastern District of Tennessee

Date Written: June 30, 2014

Abstract

The vast majority of case law establishes that, in the absence of a specific agreement to the contrary, the deposit of funds into a bank creates a debtor-creditor relationship, pursuant to which depositors are deemed creditors of their respective banks. In effect, depositors loan their deposits to banks, which may then use such deposits for ordinary banking activities, including investment and lending, speculative or otherwise. This Article examines the case history pertaining to this legal classification and proposes that such case history does not comport with depositor intent, is not supported by purportedly relevant legal premises (as illustrated by an analogy to deposits of commodities in the agricultural context), and does not justify the conclusion that bank deposits give rise to debtor-creditor relationships. The Article proceeds to explore the practical consequences of the anomalous legal classification of bank deposits as loans instead of the natural and obvious alternative — bailments.

Keywords: "Fractional reserve banking," Banking, Rothbard, Friedman, FDIC, "Federal Reserve," "monetary policy," "money supply," inflation

JEL Classification: E50, E51, E52, E53, E58, E59, K22, K23, K29, N11, N12

Suggested Citation

Harker, Timothy, Bailment Ailment: An Analysis of the Legal Status of Ordinary Demand Deposits in the Shadow of the Financial Crisis of 2008 (June 30, 2014). Fordham Journal of Corporate and Financial Law, Vol. XIX, No. 3, 2014, Available at SSRN: https://ssrn.com/abstract=2532209

Timothy Harker (Contact Author)

United States Attorney's Office - Eastern District of Tennessee ( email )

United States

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