Do you or your bank own the money on your current account?
Over the last several years, more than 80 banks in Ukraine have been declared insolvent. Business entities and private citizens have lost billions of hryvnias that was on their current accounts. We’ve got used to the news of another bank turning into an empty can, from which all funds have been washed out, leaving zero chances for restitution. It looks like there can be no happy end for stories like these. Here I’d like to shift your attention to a little detail which the banks avoid disputing, and which changes the whole scene dramatically: it is whether your bank owns the funds on your current account?
Let’s take a look from different angles:
the comparative and common sense approach: today, hryvnia is issued by the National Bank of Ukraine and is declared to be the only legal payment instrument in the country. But the law limits the ability of legal entities and natural persons to make settlements in cash, thus forcing us to use cashless payment systems. The NBU empowers its agents – the banks – to register and account all transactions with these financial instruments – cash – on bank accounts. Being just a registrar and a bookkeeper, banks are not allowed to operate with your money until you decide to enter into a deposit or trust account agreement with the bank. A current account shouldn’t be confused with a deposit account – where one concludes another agreement on a bank deposit, under which funds are borrowed by the bank and title to the funds is transferred to the bank’s ownership. In fact, accounting your money on your account itself does not provide your bank with any rights to your money. Let’s compare a current account with accounts in securities (shares, bonds, etc.) – the latter is also opened by banks serving as depositaries of securities. If the insolvency of a bank were to lead to the loss of title to shares by shareholders of a joint-stock company, who would keep shares in such an account opened with a bank? Another example: could you imagine that the hypothetical insolvency of the state registrar service or the state land cadaster would lead to losing your title to your house or land plot?
formal/legal approach: there is no provision either in the law or in the usual agreements on servicing current bank account stipulating the alienation of your funds in favor of the bank by means of accounting them on a current account opened with a bank. One cannot find any title transfer wording, or even transfer in trust provisions or orders while communicating with the bank regarding servicing your current bank account – unless you explicitly order the transfer of your money from your account to an account belonging to the bank. Even the wording ‘transfer from account to account’ is not logically correct, because the title is transferred from person to person, with due reflection in the accounts. Changes in accounts are just the registration of a transaction for the transfer of a virtual financial instrument.
There is no formal or common sense reason to stick to archaic image of the bank as the custodian of your money. This paradigm has sunk into oblivion, together with real money made of gold and silver – for better or worse. Today’s currency is a virtual thing – even that of paper. There’s no doubt that this ambiguous and non-transparent situation – is artificially supported by the banks in order to get profit from operating with your money, while not entitled to do so. The insolvency of a bank should not have any adverse effect on current accounts – which are simply a register kept by a bank, acting as the NBU’s agent. Such a register is subject to transfer to another agent as it is. But such approach could hardly be supported by the NBU, which cares for the banks and their business first.