Money Out of Thin Air – Another “Official” Source

Financial Services (Regulation of Deposits and Lending) Bill 2010-11

Douglas Carswell describes how BANKS LEGALLY OWN YOUR MONEY ONCE IT’S LEFT IN THEIR CARE and, use it to create money OUT OF THIN AIR!

I didn’t know they ACTUALLY owned it, did you?

Keep up to date with the bill: http://services.parliament.uk/bills/2010-11/financialservicesregulationofdepositsandlending.html

 

The Current State of the Law

The key case is Carr v Carr 1811 (reported in Merivale (541 n) 1815 – 17). A testator in making his bequest said “whatever debts might be due to him…at the time of his death”, the key question in this case being whether “a cash balance due to him on his banker’s account” passed by this bequest. The Master of the Rolls, Sir William Grant held that it did. He reasoned that it was not a depositum; a sealed bag of money could be, but this generally deposited money could not possibly have an ‘earmark’. Grant concluded on this point, “when money is paid into a banker’s, he always opens a debtor and creditor account with the payor. The banker employs the money himself, and is liable merely to answer the drafts of his customers to that amount.” For the legal scholars among you, Vaisey v Reynolds 1828 and Parker v Merchant 1843 both affirmed this position.

In Davaynes v Noble 1816 it was argued in front of Grant that a banker is a bailee rather than a debtor. Rejecting that argument, Grant said “money paid into a banker’s becomes immediately a part of his general assets; and he is merely a debtor for the amount.”

In Sims v Bond 1833 the Chief Justice of the Queens Bench Division affirmed in judgement “sums which are paid to the credit of a customer with a banker, though usually called deposits, are, in truth, loans by the customer to the banker.”

The House of Lords, then the highest court in the land, had its say on the matter in Foley v Hill and Others 1848, duly reported in the Clerk’s Reports, House of Lords 1847-66 (pages 28 and 36-7). In summary, the appellant in 1829 opened a bank account with the respondent bankers. Two further deposits we added in 1830 and in 1831 interest was still added. In 1838 the appellant brought proceedings against the respondent bankers seeking recovery of both the principle and interest. The counsel cleverly tried to argue that it was the duty of the respondent bankers to keep all the accounts up to date at all times and thus there was more to this relationship than that of debtor and creditor.

The Lord Chancellor Cottenham said the following in judgement

Money, when paid into a bank, ceases altogether to be the money of the principal; it is by then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it. The money paid into a banker’s is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker’s money; he is known to deal with it as his own; he makes what profit of it he can, which profit he retains to himself, paying back only the principal, according to the custom of bankers in some places, or the principal and a small rate of interest, according to the custom of bankers in other places. The money placed in custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands.

That has been the subject of discussion in various cases, and that has been established to be the relative situation of banker and customer. That being established to be the relative situations of banker and customer, the banker is not an agent or factor, but he is a debtor.

Thus the settled position of the law is that when you deposit, the bank becomes the owner of the money deposited and you become a creditor to the bank.
Source

Text of the Bill:

Financial Services (Regulation of Deposits and Lending) Bill

CONTENTS
1 Types of deposit accounts
2 Penalties
3 Commencement and transitional provision etc
4 Short title and extent

A
BILL
TO
Prohibit banks and building societies lending on the basis of demand deposits
without the permission of the account holder; and for connected purposes.
BE IT ENACTED by the Queen’s most Excellent Majesty, by and with the advice and
consent of the Lords Spiritual and Temporal, and Commons, in this present
Parliament assembled, and by the authority of the same, as follows:

1 Types of deposit accounts

(1)Banks or building societies that accept deposits from retail customers must
offer those customers a choice of at least one lending intermediary services
account and at least one custodial deposit account.
(2)A lending intermediary services account must be established on the following
terms—
(a)the customer is the lender and the bank or building society is the
borrower,
(b)the lender relinquishes title to the lent funds, which may be lent by the
bank or building society to third parties or be used as a basis on which
such loans can be made, and
(c)the bank or building society must repay the funds to the lender on
request, with interest on such terms as agreed by the lender and the
bank or building society at the time of the deposit.
(3)Bank deposit insurance will not be available for any funds in lending
intermediary services accounts.
(4)For all lending intermediary services accounts the bank or building society
must provide to the lender information on the nature of the loan and other
risks associated with the bank’s or building society’s obligation and ability to
repay the loan, including, so far as they apply—
(a)the possibility of partial or complete default,
(b)the possibility of late repayment,
(c)the possibility of runs on the bank or building society,
(d)the existence of any suspension clauses or similar limitations on or
exceptions to the bank’s or building society’s obligation to repay,
(e)the bank’s or building society’s reserve ratio policies, and
(f)the requirements of subsection (3).
(5)Custodial deposit accounts must be established on the following terms—
(a)the bank or building society will act as depositary and custodian of the
deposited funds, which, being fungible, may be commingled,
(b)depositors of such accounts retain ownership of the commingled funds,
each depositor having a pro rata interest in the funds based on the
amount of their own deposit,
(c)the bank or building society must not lend on the basis of the funds, or
lend or otherwise dispose of the funds, and
(d)the bank or building society must make any or all of the share of the
depositor’s funds available for withdrawal on demand.

2 Penalties
(1)A penalty may be imposed by the Bank of England or the Financial Services
Authority on a bank or building society which fails to offer accounts in
accordance with section 1.
(2)The penalty which may be imposed for an offence under subsection (1) is an
unlimited fine.

3 Commencement and transitional provision etc
(1)This Act comes into force on such day as the Chancellor of the Exchequer may
by order made by statutory instrument appoint.
(2)The Chancellor of the Exchequer may by regulations made by statutory
instrument make such transitional, transitory or saving provision as he
considers appropriate, subject to the provisions of subsection (3).
(3)The Chancellor of the Exchequer must by regulations made by statutory
instrument make provision for accounts opened before the day on which this
Act comes into force to continue to exist on the following terms—
(a)funds can be withdrawn but no further deposits can be made,
(b)interest accrued must be held in escrow on behalf of the customer until
the customer elects whether to hold the interest in a lending
intermediary services account, a custodial deposit account, or
withdraw it.
(4)Regulations made under subsections (2) and (3) are subject to annulment in
pursuance of a resolution of either House of Parliament.

4 Short title and extent
(1)This Act may be cited as the Financial Services (Regulation of Deposits and
Lending) Act 2011.
(2)This Act extends to England and Wales and Scotland.

Financial Services (Regulation of Deposits and
Lending) Bill
© Parliamentary copyright House of Commons 2010
Applications for reproduction should be made in writing to the Information Policy Team,
Office of Public Sector Information, Kew, Richmond, Surrey TW9 4DU
PUBLISHED BY AUTHORITY OF THE HOUSE OF COMMONS
LONDON — THE STATIONERY OFFICE LIMITED
Printed in the United Kingdom by
The Stationery Office Limited
£x.xx
xxxbarxxx
A
BILL
To prohibit banks and building societies lending on the basis of demand
deposits without the permission of the account holder; and for connected
purposes.
Ordered to be brought in by Mr Douglas Carswell
and Steve Baker.
Ordered, by The House of Commons,
to be Printed, 15 September 2010.

Download pdf: http://www.publications.parliament.uk/pa/cm201011/cmbills/071/2011071.pdf