Unsecured creditor

It has now been well settled that the first and foremost relationship between the customer and the bank is the relationship of a Creditor and Debtor..... The money deposited with the banker becomes his property and at his disposal.

Law Essays

Once you deposit money at a bank - that money ceases to be yours. It now belongs to the bank.

Most people think that when they deposit money into a bank - that such money continues to belong to them (and not to the bank). This assumption is totally wrong.

The legal position of a depositor was settled as long ago as in 1848 - in the court case of Edward Thomas Foley vs Thomas Hill. This case determined that depositors are unsecured creditors.

In plain English this means that when you deposit your money at a bank - it becomes the possession of the bank, and that you have effectively become an investor in that business. The web site Cobden Centre discusses this issue in detail.

banking-regulationBelow are extracts from the book Banking Regulation of UK and US Financial Markets by Dalvinder Singh.

The bank-customer relationship of debtor and creditor provides that a bank does not have a continuous obligation to account for its decisions as to how it uses depositors' money.

In general , unsecured creditors, such as depositors of a bank, will have very little redress to recover their debts if a company is put into liquidation.

The interests of the depositor, as a creditor, are secondary to the interests of shareholders as a whole.



RBA - unsecured creditors

The RBA web site does not state explicitly that "depositors are unsecured creditors" - but a quick search of their site does provide statements that support this position. Click on the images below and make up your own mind.

 Australia's Financial Regulatory Framework  RBA - Covered Bonds
 RBA-01    RBA-02
 Depositor Protection in Australia


Confiscation of depositor funds

The Cyprus "bail in" is not a legal aberration - it is perfectly legal. Ninety percent of all funds over €100,000 were seized in the following manner:

  • 37.5% was confiscated and converted into shares.
  • 22.5% is held as "a buffer" with possible conversion into shares.
  • 30% is "temporarily frozen".

All deposits in all banks are at risk - for the simple reason that depositors do not own the money they deposited. They are merely investors in a business called banking. Given is a bank statement from Laikie Bank in Cyprus following the "bail in" - with the bulk of the funds effectively confiscated.


 The ASP will change the monetary system so that the relationship between depositor and bank is that of principal and agent (and not creditor-debtor). Your money belongs to you - and it should remain yours at all time.

Download this file (Foley-versus-Hill.pdf)Foley vs Hill1285 kB