Law of banking

Banking law is based on a contractual analysis of the relationship between the bank and the customer. The definition of bank is given above, and the definition of customer is any person for whom the bank agrees to conduct an account.

The law implies rights and obligations into this relationship as follows:

1. The bank account balance is the financial position between the bank and the customer, when the account is in credit, the bank owes the balance to the customer, when the account is overdrawn, the customer owes the balance to the bank.

2. The bank engages to pay the customer's cheques up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit.

3. The bank may not pay from the customer's account without a mandate from the customer, e.g. a cheque drawn by the customer.

4. The bank engages to promptly collect the cheques deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account.

5. The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship.

6. The bank has a lien on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank.

7. The bank must not disclose the details of the transactions going through the customer's account unless the customer consents, there is a public duty to disclose, the bank's interests require it, or under compulsion of law.

8. The bank must not close a customer's account without reasonable notice to the customer, because cheques are outstanding in the ordinary course of business for several days.

These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force in the jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship.