Bailments not Bailouts

The previous post described the situation under law, but there is no reason why the relationship between a bank and a depositor should be decided by judges. Banks are providing a service to their customers. The customers are entitled to demand whatever service they want. If enough customers demand a particular service, an astute bank will provide that service. If enough people demanded a different service, several banks might start to provide it.

Many people will be happy to accept the service provided by banks under the current legal arrangements. They are happy for the bank to take control of their money and use it as they please, provided they can get good interest and no fees on their cheque account. If that is what they want, that is fine.

However, many other customers will want a different type of account. They will prefer a bailment-type cheque account in which their money does not get transferred to the balance sheet of the bank, but remains the property of the depositor. Many customers do not want to become creditors of the bank. They want to be the owner of their money.

Modern banking law does not prevent banks from contracting with depositors to provide a bailment-type account. The money in this account would not become an asset of the bank. It would not be available for the bank to use. It would be stored in the same way as a storage warehouse stores my furniture.

When my salary goes into my cheque account, I want it to be available when I demand it. I do not want to the bank to treat my money as its own property. I do not want the bank to loan my money out to someone else. If the bank provides this service well, I am happy to pay a small fee for that service.

I do not want the bank to decide when I am not going to use my money. I am capable of doing that myself. If I do not need some of my money for a time, I will move it into a term deposit, so the bank can lend it out for a time, but I do not want the bank just deciding it can lend the money in my cheque account whenever it chooses. I do not want the bank treating my money in the way described by Lord Cottenham in my previous post. I want a cheque account that is a bailment. If enough customers were to demand this service, some innovative bank should provide that service.

We should stop talking about bailout of banks and start demanding bailment from banks.