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this post was submitted on 26 Jul 2023
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You own the money in your account, simple as that for individual accounts.
The transaction is "I give the bank money, and they have to give it back later". How can we arrange that legally without transferring ownership? I only know these ways:
Bailment: That would mean the bank keeps the physical bills (or other valuables) in a proverbial or literal safe with my name on it, to return the exact same items later. Of course banks offer that service, but that's not what we're talking about.
Trust: The bank takes my money and invests it on my behalf. It does not go on the bank's books, and they cannot use my money for their own purposes (e.g. as security for loans, to fulfil capital requirements, invest it themselves and keep the proceeds, etc.). This is obviously not the case.
Agency: The bank takes my money and executes transactions on my behalf, according to my orders. Again, obviously not the case.
Am I missing something? Is there some special law for bank accounts? I'm genuinely interested.
Think about it this way, if I'm going after your money, do I sue you, or do I sue the bank?
It's funny you mentioned bailment, the bank is absolutely required to keep enough cash on hand in order to satisfy what the FDIC deems to be a reasonable amount of coverage for their deposit accounts. (search "demand deposit account")
If I owe you money, and somebody else owes me money, yea of course you would sue me, not that other person. But I could write over some of the debt I'm owed to you to clear my debt to you.
And isn't this exactly how debt enforcement works? You win in court and the court tells the bank (or forces me to tell the bank) to take x amount out of my account and put it into your account. The debt I was owed gets transferred to you, which clears my debt to you.
No, it doesn't work like that at all. The difference is in the demand. You go to your bank and you demand the money in your account and you get it, simple as that. You can't do that with debt. Me owing you a dollar doesn't mean you have a dollar to spend. Ease of collection is literally the most important aspect of what we're discussing.
Of course you can "spend" debt, but only if the debtor is very reputable. Consider the old example: I ask you to fix my car. I don't have any money on me to repay you, so I give you an I.O.U.. You go get a haircut, but don't have any money on you either. The hairdresser knows I'm a standup guy so he takes my I.O.U. as payment instead. Later he comes to me to collect, I repay him and we rip up the I.O.U.. See how it can be spent like money (we could of course add any number of people in between who trust me where my I.O.U. changes hands)?
Part of the agreement with the bank is that they guarantee (to a reasonable degree, as the FDIC puts it) to be available for collection in cash at any time. That of course makes them an extremely reliable debtor, and therefore their I.O.U.s (a.k.a. the money in your account) are virtually globally accepted as payment (not least because of the government heavily regulating the matter). See the parallels?
Also, I still would like to know what the legal nature of a bank account is if not debt. I think I've ruled out Bailment, Trust, and Agency. What else is it?
Going on a tangent here, I think what cannot be understated is the power dynamic intrinsic in debt agreements. Usually, the creditor gains a considerable amount of power over the debtor, especially if the latter fails to repay his debt (the threat is foreclosure, imprisonment, etc.). It may be difficult to see a bank account as a debtor/creditor relation, precisely because this power gradient is inverted. The bank is the debtor, but somehow they retain all the power in the relationship.
Consider what happens if they cannot pay up (during a bank run for example): it is not the bank and the bankers that are under physical threat, but its creditors (the account holders), because obviously without money they cannot survive.