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.
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.
I wonder what other arrangement it could even possibly constitute.
Bailment? That would mean physically locking the bills that you deposit in a safe that you rent, which is possible I guess, but not what we’re talking about here.
Trust? This would mean the deposit does not go on the bank’s books, and they cannot use it for their own purposes. This is clearly not the case, at the very least since investment banks and savings banks were merged.
Agency? That would mean the bank uses your money to enact transactions on your behalf, again, clearly not the case.
That leaves the only other form of “I give you money and you give it back later”, namely debt.
It’s certainly how banks work where I live, and presuming we are talking about the US here, I did a quick skim through the first few results on google and there mostly seems to be agreement that it is a debtor/creditor relationship.
How would you describe the legal arrangements of a bank account then?
Well I’m interested now. It certainly is the case where I live, and presuming we are talking about the US here, I did a quick skim through the first few results on google and they seem to agree that it’s a debtor/creditor relationship.
How else would you describe the legal arrangements of a bank account then?
Not defending the Musk here, but literally it’s not your money anymore as soon as you put it in a bank account.
The money you put in your account belongs to the bank, and the account functions as an I.O.U… A very privileged one compared to other debts, and in most cases redeemable without notice, but you’re in fact just another creditor.
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.