Edited by Matthias Haentjens and Bob Wessels
Chapter 16: Legal and operational segregation of securities, derivatives and cash
Ever since banks have come into existence in the form as we know them today, banks have fallen insolvent. One of the main reasons for these insolvencies is that clients who have deposited their assets with the bank do not take free of the bank’s other creditors’ claims. Thus, from the 13th century onwards, claims of clients have ranked pari passu with claims of the bank’s other creditors. To be more precise, the development from money changers to banks in the modern sense may have taken place in Genoa as early as around 1200 AD, while in Venice, this development took place around 1300 AD. Back in those earliest days, a deposit for safekeeping was classified as depositum regulare, while a deposit into a current account was classified as depositum irregulare. Under depositum irregulare, the depositor lost ownership of the assets deposited. Moreover, his assets were fungible, and the banker had to return equivalent assets, that is not the very same assets, but the same in quality and quantity. It is from this moment on that banks have fallen insolvent, as it was the case that bankers held only a tiny fraction of the sums received in deposit available for retrieval by depositors. Moreover, it is since then that they have lent on longer terms than deposits could be retrieved. Consequently, from their very inception on, the bank’s business model was inherently risky. As a matter of course, this was widely recognized.
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