84 UMKC L. Rev. 913 (2015-2016)
Deposits as Debts: The Peculiar Relationship between Bank and Depositor

handle is hein.journals/umkc84 and id is 939 raw text is: 



                       DEPOSITS AS DEBTS:
                THE PECULIAR RELATIONSHIP
              BETWEEN BANK AND DEPOSITOR

                                 Zach  Howe*

        This Article analyzes the legal and  historical development  of banks'
power  to loan deposits, a power that forms the foundation offractional-reserve
banking.   The ability to loan deposits derives from their legal classification as
debts.  This categorization differs from that of other fungible-good deposits,
which  are considered bailments. To explain the law's treatment of bank deposits,
this Article looks to historical and legal trends that date back to sixteenth-century
England   and  follows   those  trends through   nineteenth-century  American
jurisprudence.   Ultimately, the Article  concludes that  the courts correctly
classified deposits as debts, but erred in failing to require banks to disclose to
depositors that they were not, in fact, holding their deposits in safekeeping.

                            I. INTRODUCTION

        The  legality of most aspects of monetary policy in the United States has
 long been settled. The  Constitution affords Congress the power  [t]o borrow
 money  on the credit of the United States and [t]o coin money, land] regulate
 the value thereof. . . .' Interpreting these two clauses, the Supreme Court has
 confirmed the federal government's power to charter a bank,2 tax notes issued by
 state banks,3 issue paper money with  legal tender status,4 and invalidate gold
 clauses in private and public contracts.'
        In  analyzing the development   of the federal government's  manifold
 powers over money,  however, one  power antecedent to most others is often lost
 in the shuffle: the power to lend deposits. This power  is the basis of money
 creation through fractional-reserve banking.6 The power bears significance today
 for numerous  reasons, not  the least of which  is its relation to the Federal
 Reserve's ability to influence the money supply.7 Currently, under the reserve
 requirement set by the Federal  Reserve, banks  are only required to hold ten



 * Simon Karas Fellow, Ohio Attorney General's Office. Adjunct Professor, Capital University Law
 School. J.D., Harvard Law School, 2014. The author wishes to thank Professor Christine Desan at
 Harvard Law School for her guidance and critique during the development of this article.
 ' U.S. CONST. art. I,  8, cl. 2, 5.
 2 See McCulloch v. Maryland, 17 U.S. 316, 400 (1819).
 3 See Veazie Bank v. Fenno, 75 U.S. 533, 536 (1869).
 4See Juilliard v. Greenman, 110 U.S. 421, 435 (1884); see also Knox v. Lee, 79 U.S. 457, 529
 (1871).
 1 See Perry v. United States, 294 U.S. 330, 346 (1935) (private contract); Norman v. Baltimore &
 Ohio R. Co., 294 U.S. 240, 291 (1935) (public contract); Nortz v. United States, 294 U.S. 317, 323
 (1935) (public contract).
 6 See Timothy C. Harker, Bailment Ailment: An Analysis of the Legal Status of Ordinary Demand
 Deposits in the Shadow of the Financial Crisis of 2008, 19 FORDHAM J. CORP. & FIN. L. 543,
 560-62 (2014).
 7 See id. at 559-62.

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