A widespread perception is that a bank is a custodian of depositors’ money and is under an obligation to guard it for them. From the legal perspective, this is, of course, untrue. It was settled way back in the 19th century that a bank is a debtor of and borrower from its depositor. In that capacity, the bank is authorized to use money on deposit for its own benefit and profit. At the same time, like a borrower liable on a simple monetary debt, a bank is responsible for the return to the depositor/lender of the entire amount borrowed. A bank is not released from liability for the loss of the money on deposit in circumstances that under the law of bailment would have released a custodian—for example, for lack of fault.
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Reproduced with permission of the publisher from National Banking Law Review, vol. 31, no. 6, December 2012.
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