Demand Deposit (2) - Warehousing

To make the nature of a demand deposit clearer, consider a parallel example. If I am going out of town for a while, I may engage a warehousing company to store my dining suite until I return. The warehouse will charge a fee for providing this service.

When my dining suite goes into the warehouse its ownership does not change. The dining suite still belongs to me. The warehouse owner cannot do what he likes with the table. He cannot bring it out and use it when he has guests for dinner. He cannot dance on the table top or use it for playing table tennis. The warehouse owner cannot decide how the table will be used, because he has no ownership rights to it. All he has is a duty to care for my dining table in the way specified in the contract.

If I decide not to return, I can write to the warehouse and ask that the table be delivered to my daughter and the chairs to one of my friends. The warehouse owner will do this provided I pay the cost of transport. He cannot refuse to carry out my request, because he has relatives to staying and is using the table. If this happened, I would accuse him of misappropriating my dinning suite. If he has moved it into his own home, he could be charged with theft. Everyone would understand that he has done something immoral.

If the word got out about what he had done, his warehouse would soon be empty, because people would stop trusting him. The service that he offers is skill at caring well for things that belong to other people. This service only has value to customers, if they can trust him to provide the care that he has promised to provide. He is really selling trust, so if he proves to be untrustworthy, his service has no value and people will be unwilling to pay for it.

The warehouse owner does not record the things stored in his warehouse on his balance sheet. The only asset on his balance will be the warehouse that he owns. He does not include the contents of the warehouse, because he does not own them and they are not his assets. The only way that they will appear on his balance sheet is through a contingent liability for inadvertent damage that might be done to something that is in his care.