On those happy occasions when we have too much cash, we take it to the bank for safe keeping. It’s an event so mundane it’s hardly worth comment. We just wish we had reason to do it more often. We stand in line, eventually get our turn at the window and hand over our cash. Numbers are typed into a computer system and mostly, we get a receipt. Job done. We leave the bank and get on with our day, content in the knowledge our cash is safe and being well looked after. Or is it?
what’s yours is mine
Well, maybe not so well looked after as we might like to think, or even have been led to believe. The truth of the matter is the moment you hand over your money to the cashier it becomes the legal property of the bank. As Michael Caine would likely say, ‘There’s not a lot of people know that’. The bank may now do whatever they wish, with what was a few moments ago, your money – even go down to the local casino and blow it on a black-jack game. You have no legal recourse to prevent it. As soon as you paid it in, your money became legally theirs, all that remains for you is an entry in the record of your transactions more commonly known as your bank account.
that’s daylight robbery
No, it’s not. That’s the law. The bank does not have any legal obligation to repay you, there is no contract. All they have is an undertaking, a promise, to repay pay you that amount when you request it or to pay it on to another person following your instructions – by way of a cheque or credit card transaction. The key point here is that promises are not legally binding in most courts of law.
This is why when a bank is in trouble and cannot cover its liabilities it quickly prompts a ‘run on the bank’ – everybody rushes in to take out their cash again before there’s none left. When there is none left, that’s it – the bank collapses unless it can borrow more from somewhere else to meet its liabilities – this is known as a bailout if it comes from the government (read taxpayers cash – the government doesn’t actually have any money of its own – it’s all yours).
When a bank does go bankrupt and is taken into receivership any remaining assets are sold off and the proceeds divided up between the bank’s debtors. It may come as another surprise to you to know that regular account holders are very much down the bottom of that pecking order for any of the leftovers. Way before you come the stockholders with preference shares and a whole bunch of other corporate interests. Accounts holders frequently get nothing.
but when I default, they take my house!
Sure they do. When the shoe is on the other foot and you owe the bank money, things are completely different. Did you actually believe, in all innocence, it would be a just system?
Cast your mind back to the last time you got a loan from the bank. A mortgage for house purchase is a classic example. They check out your creditworthiness, can you pay them back, do you have steady well-paid employment and are you of age and in good health such that you’re going to be around to pay them back? Is the asset you’re using the money for worth that much? Can it be easily liquidated if necessary? They do all this before even considering giving you money. Did you do the same checks on them before giving them yours? I doubt it.
But to continue, the next step in getting your loan is to sign the mortgage deed. This is a contract. And contracts are very much enforcible in law – lawyers thrive on them. So you see the banks and financial institutions are pretty cute when it comes to doing business.
There’s nothing hidden about these protocols, it’s all out there if you do some research. But the financial guys make sure they don’t make a lot of noise about it. They much rather you trotted in and out of their establishments in blissful ignorance. It’s better for them that way.
But now you know. Check out the following links for further information: