3. The Bank's Role in the Monetary Bank-Deposit Contract

The economic events and accounting procedures involved in the monetary bank-deposit contract are substantially different from those examined in the preceding section, on the loan or mutuum. (We covered the loan contract first in order to better illustrate by comparison the essential differences between the two contracts.)

In the case of a regular (or sealed) deposit of a certain number of perfectly and individually marked monetary units, the person receiving the deposit need not record anything under Assets or Liabilities, because no transfer of ownership occurs. However, as revealed by our study of the legal essence of the irregular (or open) deposit contract, this second contract represents a deposit of fungible goods, in which it is impossible to distinguish between the individual units deposited, and therefore a certain transfer of “ownership” does take place. This occurs in the strict sense that the depositary is not obliged to return the very same units received (which would be impossible, given the difficulty of specifically identifying the units of a fungible good received), but others of equal quantity and quality (the tantundem). Nevertheless, even though a transfer of ownership may be established, availability is not transferred to the depositary, because in the irregular deposit contract he is obliged to continuously safeguard the tantundem of the deposit and therefore must always maintain available to the depositor units of an equal quantity and quality as those originally received (though they may not be the same specific units). Hence, the only justification a depositary has for entering a deposit contract in his account books lies precisely in the transfer of ownership entailed by the irregular deposit; however, it is important to point out that given the extremely limited sense in which this transfer of ownership occurs (it is not at all equal to a transfer of availability), at most the information should be recorded in mere “memorandum accounts” with purely informative purposes. Let us imagine that we have traveled back in time to the dawn of fractional-reserve banking and that a depositor, Mr. X, decides to deposit 1,000,000 m.u. in Bank A (or if you prefer, any person today decides to open a checking account in a bank and deposit 1,000,000 m.u.). This second case involves a true deposit contract, though an irregular one, given the fungible nature of money. In other words, the essential cause or purpose of the deposit contract is the desire of Depositor X that Bank A safeguard the 1,000,000 m.u. for him. Mr. X believes that, despite having opened the checking account, he retains the immediate availability of 1,000,000 m.u. and can withdraw them at any time for whatever use he pleases, since he has made a “demand” deposit. From an economic standpoint, for Mr. X the 1,000,000 m.u. are fully available to him at all times and therefore contribute to his cash balances: that is, even though the monetary units were deposited in Bank A, from a subjective viewpoint they remain as available to Mr. X as if he carried them in his pocket. The entry corresponding to this irregular deposit is as follows:

(This should be a mere memorandum entry.)

We see that, although Bank A is justified in making this book entry, since it becomes owner of the monetary units and stores them in its safe without distinguishing them from others, the reference entries should only affect information or memorandum accounts. This is due to the fact that, though the ownership of the monetary units has been transferred to the bank, it has not been completely transferred, but remains totally restricted, in the sense that Depositor X still possesses the full availability of the monetary units.

Apart from this last observation, nothing unusual has yet happened from an economic or accounting standpoint. A Mr. X has made an irregular deposit of money in Bank A. Up to now this contract has not resulted in any modification of the quantity of money in existence, which continues to be 1,000,000 m.u. and remains available to Mr. X who, for his own convenience, has deposited it in Bank A. Perhaps depositing the money is convenient for Mr. X because he wishes to better safeguard his money, avoiding the dangers that await it in his own home (theft and losses), and to receive cashier and payment services from the bank. In this way Mr. X avoids having to carry money in his pocket and can make payments by simply writing a sum down on a check and instructing the bank to send him a summary each month of all the operations carried out. These banking services are all very valuable and warrant the decision of Mr. X to deposit his money in Bank A. Furthermore, Bank A is fully justified in charging the depositor for these services. Let us suppose the agreed-upon price for the services is 3 percent per year of the quantity deposited (the bank could also charge a flat rate unrelated to the amount deposited, but for the purpose of illustration we will assume the cost of the services depends on the entire amount deposited), a sum with which the bank can cover its operating costs and also achieve a small profit margin. If we suppose the operating costs are equivalent to 2 percent of the amount deposited, the bank will obtain a profit of 1 percent per year, or 10,000 m.u. If Mr. X pays this annual fee (30,000 m.u.) in cash, the following book entries would result from the rendering of the above-mentioned services:

At the end of the year, Bank A's income statement and balance sheet would be as follows:

As we see, up to now there has been nothing unusual or surprising about the economic events or accounting processes resulting from the monetary irregular-deposit contract. The bank has made a small legitimate profit, derived from its role as a renderer of services valued by its customer at 30,000 m.u. Moreover, there has been no change in the quantity of money, and after all of the transactions, the bank's cash account has only increased by 10,000 m.u. This sum corresponds to the pure entrepreneurial profit derived by the bank from the difference between the price paid by the client for services (30,000 m.u.) and the operating cost of providing them (20,000 m.u.).

Finally, given the depositor believes the money he deposited in Bank A remains constantly available to him, a situation equal to or even better than his keeping the money in his own pocket or at home, he need not demand any additional compensation, as in the case of the loan contract, which is radically different. The loan contract required the lender to relinquish the availability of 1,000,000 m.u. of present goods (in other words, to lend) and to transfer the availability to the borrower in exchange for the corresponding interest and the repayment of the principal one year later.⁶