DEPOSITS AND CHECKS 1. Special and general deposits.—There are two kinds of deposits, special and general. A special de posit may consist of anything of value left with the bank for safekeeping. The relation between the de positor and the bank in such a case is much the same as if he had stored furniture in a storage warehouse. The title to the deposit does not pass to the bank, but rests with the depositor. The bank must use ordi nary care in protecting it, but if it is stolen without negligence on the part of the bank, the owner must bear the loss. The banker must return to the deposi tor the identical thing deposited. If the bank accepts a consideration for keeping the deposit, it is held by law to the exercise of greater care. Safety-deposit business does not present any perplexing problems to the student who views banking as a whole.
General deposits are obligations of the bank to pay money. They may be payable on demand or at a stated time in the future. The great bulk of com mercial bank deposits are payable on demand. They create between the and the customer the relation of debtor and creditor; the title to the deposit passes to the bank, while the depositor acquires a right to receive a stated sum of money. The bank may sat isfy a depositor by the payment of legal tender, no matter by what form of money or credit instrument the deposit was created, or how much the legal tender may have depreciated. During the Civil War the legal-tender greenback issues permitted the banks to pay their depositors depreciated paper money, even if gold had been deposited. At the time, when gold payments were desired, it was customary to make special contracts wherein this was specifically agreed upon.
2. Origin of deposits are created in various ways. Money may be turned over to the bank, checks or other cash items may be deposited and, finally, the proceeds of loans and discounts may be left on deposit with the bank. The bulk of bank deposits are formed by the last two methods. Most of the checks and drafts that a business man receives in the course of the day's business are sent to the bank for deposit instead of being cashed. Because of this
custom, checks serve as a more effective substitute for money than other credit instruments of limited acceptability. The ordinary credit instrument of limited acceptability, such as the promissory note, does not necessarily economize the use of money, since it calls for the ultimate payment of money. The need for money is merely postponed. With the check the case is different. While checks call for money in the same way, they usually go back to the bank for deposit, and not for cash. If there is only one bank in the community, it is easy to see that one deposit is drawn down only to build up another, and no money changes hands. Where there are many banks the matter is more complicated, but the results are the same, as will be seen when the clearing house is discussed.
Borrowers usually leave a large proportion of the proceeds of their loans on deposit with the bank. Otherwise the banks could not lend as freely as they do. It is not uncommon for a banker to ask a pros pective borrower how much of the loan he intends to leave on deposit. The borrower who does not de posit is not considered a desirable customer. In the same way, a depositor who habitually draws out large sums at unexpected times is an embarrassing cus tomer for the bank.
3. Reserve against deposits.—A bank must carry a reserve against deposits for the same reason that it must carry a reserve against circulating notes. The problem is peculiar in the United States. We have seen that national banks do not need to carry any spe cial reserve against circulating notes, except the five per cent redemption fund at Washington, because of the slowness with which notes come back for redemp- • • • tion. With deposits it is different. It has been esti mated that while the average dollar of money in the United States is exchanged only twenty-one times in the course of a year, the average deposits are turned over fifty times in the same period.