Suppose, for example, that you own a precious chair and that you place it in a warehouse for safekeeping over the summer. You return in the fall and the warehouseman says, "Gee, sorry sir, but I've had business setbacks in the last few months, and I am not able to pay you the debt (the chair) that I owe you." Would you shrug your shoulders and write the whole thing off as a "bad debt," as an unwise entrepreneurial decision on the part of the warehouseman? Certainly not. You would be properly indignant, for you do not regard placing the chair in a warehouse as some sort of "credit" or "loan" to the warehouseman. You do not lend the chair to him; you continue to own the chair; the chair is and always continues to be yours; he is storing it for safekeeping. If the chair is not there when you arrive, you will call for the gendarmes and properly cry "theft!..."
-- Dr Murray Rothbard, "The Case Against The Fed", p34
When you deposit money in a bank, you are actually investing it. It is a loan to the bank. Like all investments, there is risk. This is quite different from storing a chair in someone else's warehouse. In the latter case, you still own the chair, and can make claims against the warehouse should it be damaged or turn up missing.
I think the term deposit is highly misleading. It is so misleading that some people consider it criminal that a bank makes interest on your money, as evidenced by the side quote. In fact, it is not your money, it is the bank's money. The fact that so few people realize this is a travesty and almost a fraud, but really is more of a misunderstanding than a crime. And it is high time that this was made more clear.
In modern times, numerous acts have attempted to aleviate the damaging effects of this. First, there is a reserve requirement: banks must not overleverage the funds. Second, there is deposit insurance: the government will reimburse you for any lost funds up to a limit. Yet the fundamental problem (either a crime or a misunderstanding) still exists, and is still very relevant.
To be clear, I strongly believe that this behavior of banks is not a crime, and is not immoral in any way. They go into business with depositors. The depositor fronts the money, and the bank arranges the investment. The profit is split between the banker and the depositor (investor) in the form of interest.
The problem here is the common fiction which perpetuates the belief that this arrangement is anything other than an investment.
"The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted."
-- Lord Cottenham, Foley v. Hill and Others, House of Lords ruling, 1848