banking
Are banks committing the crime of deceptive marketing?
<p>As depositors of Silicon Valley Bank are painfully finding out, money in a checking account is not exactly the same as dollar bills in your wallet.</p>
<p>Money in a checking account are effectively overnight loans to the bank, which are automatically renewed daily, until withdrawn.</p>
<p>The bank borrows money from you, on an overnight basis, and then invests these money in long-duration assets such as 10 year government bonds.</p>
<p>A bank failure happens when the bank's assets have declined in real-time market value such that those assets can no longer be sold to fulfill all overnight withdrawal requests.</p>
<p>However, the entire global economy functions on the implicit assumption that checking accounts are in fact the same thing as dollar bills in your wallet.</p>
<p>When I login to my bank account online, I see a certain number of dollars. These dollars are presented to me as readily available &quot;cash under the mattress&quot;. Unbeknowst to me, these dollars are not readily available. They have been invested into illiquid long duration assets, such as 30 year mortgages at 3.5% rate of interest, far below the current overnight interest rate of 4.5%.</p>
<p>Throughout the process of setting up the checking account, signing the paperworks, it was not made clear to me that my &quot;readily available&quot; cash deposit was actually a loan to the bank. And that, in the event of a bankruptcy, no pun intended, amounts above 0.25 million would be considered as a loan to the bank, payable only up to the amount realized from the fire sale of the bank's remaining paltry assets, minus lawyer fees.</p>
<p>Many highly influential figures in the financial space are right now calling for a taxpayer funded bailout of SVB overnight deposits. Failing which, they claim, would result in a loss of confidence in thousands of small banks.</p>
<p>Question: Is the practice described above, to wit: representing overnight loans that are backed by duration mismatched assets as a form of &quot;bailment&quot;, and marketing a bank's services as such, a form of deceptive advertising?</p>

<h2>No</h2>
<p>The bank is not pretending in any way that the money received from depositors is guaranteed. If they had done, then that would be deceptive marketing.</p>
<p>The bank held itself out to be a bank and to provide the services that a bank provides. They are allowed to assume that their customers know how banking works. It is clear that you do not because both explanations you have provided are wrong.</p>

<p>It could be that some, or even many, customers do not understand the nature of the banking system they use. But the facts are readily available for people who read the fine print. Customers should make themselves aware if their <a href="https://en.wikipedia.org/wiki/Deposit_account" rel="nofollow noreferrer">deposits</a> are <a href="https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation" rel="nofollow noreferrer">insured</a> or not, if the sums they handle reach the limits of such insurance schemes.</p>
<p>If you want to interpret deposits as mis-advertised loans, you are denying the financial system <em>and the legal system</em> the ability to have special rules for deposits. But such rules are necessary. Have you noticed how quickly the FDIC did act to make the insured deposits available again? If deposits <strong>were</strong> loans, payouts would be at the end of drawn-out bankruptcy proceedings ...</p>

<p>The concept of bailment is limited to tangible property. This is well-established common-law principle, but see generally Dickerson, &quot;<a href="https://scholarship.law.vanderbilt.edu/vlr/vol41/iss1/4/" rel="nofollow noreferrer">Bailor Beware</a>&quot; (1988).</p>
<p>As far as I can tell, banks are not misleading when they accept your deposits as creating a liability for them. And in my experience, banks clearly advertise whether your deposits are FDIC insured and the extent of that insurance. For example: <a href="https://www.svb.com/fdic" rel="nofollow noreferrer">https://www.svb.com/fdic</a></p>
