Banking on the Postal Service?
Filed under Ideas Worth Exploring
Imagine an economic collapse in which millions of people lose half of their life savings and their trust in the country’s largest financial institutions is severely shaken. To help restore trust in the financial sector, the government creates a savings system operated by its postal administration. Sound unrealistic? Maybe so, until you remember that the U.S. Post Office Department offered a government-backed savings system to Americans for more than half the twentieth century.
Searching for ways to raise revenue for a postal telegraph network and inspired by Great Britain’s postal savings system, Postmaster General John A.J. Creswell first recommended a postal savings bank for the United States in 1871. But it wasn’t until the Panic of 1907, which shook the public’s trust in private banks, that the concept really gathered widespread support. Finally, in 1910, the Congress passed the Postal Savings Act that authorized the Post Office Department “to establish postal savings depositories for depositing savings at interest with the security of the Government for repayment thereof, and for other purposes.”
Loading ... Loading ...The creation of the postal savings system was intended to get money out of hiding and to provide safe depositories for people who had lost confidence in banks. It was also intended to provide a convenient means of saving for individuals throughout rural America.
Initially, depositors in the system were limited to a balance of $500, but this was raised to $1,000 in 1916 and to $2,500 in 1918. The system paid depositors 2 percent annual interest. During the first two decades, the system had a natural advantage over private financial institutions, because the deposits were always backed by “the full faith and credit of the United States Government.” Even so, deposits were slow at first, but by 1929, $153 million was on deposit. Because of the bank failures during the Great Depression, the amount jumped to $1.2 billion in 1934, which was one-third the amount of the entire savings and loan industry. The system continued to flourish through World War II, but by 1948, proven banking reforms and higher interest rates caused a downward trend for the postal savings system. Congress abolished it in 1966 and the Post Office Department stopped accepting deposits on April 27th of that year.
In a column for the New York Times this past October, Michael Lind proposed that a new postal savings system be created. Lind argued that “the current structure of public and private finance chronically fails to address four problems: the almost 10 percent of Americans without a bank account; the concerns of all Americans about the security of their savings, the growing indebtedness of the country to foreign governments and financial institutions, and underinvestment in public assets like sewer systems and bridges.” In his view, a postal savings bank would address these issues.
Opponents of this idea argue there are plenty of private institutions that offer banking services, even in rural areas of the country, and that the Postal Service should concentrate their efforts on collecting, processing, and delivering the nation’s mail. They also argue that since the banking reforms created during the Great Depression (the FDIC is a prime example), there is no reason why the American people should ever feel their savings are not secure. After all, if the U.S. Government could not guarantee people’s savings through the FDIC, why would their money be any more secure in a postal savings system?
The United States and Great Britain are not the only nations that have experience in combining postal services and banking. In more than 40 countries, posts provide some type of banking services (for example, China, Italy, Japan, Israel, Austria, Brazil, and India). In fact, during the current downturn, revenue from financial services has helped sustain some posts. The U.S. Postal Service, however, could not start offing savings services unilaterally. A change in current law would be required.
What do you think about a new postal savings system? Do you believe such a system is needed? If so, what are the major benefits you foresee? If not, why not?
This blog topic is hosted by the OIG’s Risk Analysis Research Center (RARC).
24 Responses to “Banking on the Postal Service?”
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May 5th, 2009 at 6:43 pm
You bring up a good point that the best pieces for mailers may not be the best pieces for the Postal Service’s machines. It’s also important, however, that the revenue from mail pieces cover their costs. Customized MarketMail product is an example of a Postal Service product that helps mailers send really dramatic mailpieces yet bypasses equipment.
http://www.usps.com/customizedmarketmail/welcome.htm
May 5th, 2009 at 5:01 pm
The Postal Service could just put the money in Treasuries. Some people call these narrow banks. You’re right that a postal savings system would require a lot of administration.
May 5th, 2009 at 7:32 am
Postal workers are so taxed and their work hours so cut to the bone now, one more thing like this would turn out a big mess. Already, Postmasters are so busy, and clerks have so few hours that when people pay their Post Office box rent, half the time it never gets entered into webbats and the customers box gets cut off when they have paid. I can just imagine these rural Postmasters trying to manage bank deposits! I think people would use the service, but would take more employees to handle it. Also, potemtial customers would find it annoying that the hours are so short, and many offices closed in the middle of the day that they couldn’t access their money when they want to withdraw. We would have to keep large sums of money on hand, causing potential security problems with so many employees in the office, and would have to have more cost for safes, alarms, etc. Would put hCR drivers in danger when crooks realize the large amounts of money they potentially might be carrying.
May 5th, 2009 at 2:02 am
Many posts around world provide some kinds of banking services to their citizens, and some of them are doing as well as private financial institutes. In China, for example, many people still use postal service to wire funds although local banks could provide more professional services. But, USPS can’t! The causes of problems or “challenges” that USPS is facing might not be simply current economic downturn and innovation of computing technologies. If you work for USPS, and you are the person who loves to observe scientifically, it will not be difficult to perceive that it is caused by its infrastructural and managerial failure.
May 4th, 2009 at 10:00 pm
i’ve been told that the usps’s customers are the ones that mail things, esp direct mailers. why then did the usps hike rates and try to force this mailers to adhere to sizes that were good for the usps to automate, but not in the best interest of the mailers? if every advertiser mails a identical piece of mail (size), it is not effective. the mailers have found their response rates have gone done alot. so they are turning to other resources. potter, you have to reverse this trend you have caused.
May 4th, 2009 at 4:59 pm
That would certainly be a good compromise. Rural and perhaps some underserved urban citizens would have better access to banking. The Postal Service could get additional funds to sustain its retail network.
May 4th, 2009 at 4:55 pm
You make a good point, another, that running a bank could distract the Postal Service from its main mission.
May 4th, 2009 at 3:27 pm
The question is not necessarily about a postal savings program and whether that should be reinstituted. The question is why not allow the USPS to utilize its “brick and mortar” facilities as an agent for banks in small communities that do not have physical banks to serve the public. The USPS could offer simple banking services as a contractor/agent of a bank…….offering the bank’s services (not a USPS savings product). The US gov’t could also untilize the USPS for the sale of any financial instruments, etc to make it easier for citizens. The idea is to make life easier for citizens and to generate revenues for the USPS to help pay for universal service and the extensive retail network.
May 4th, 2009 at 1:16 pm
I don’t feel the Postal Service has any need to get into the banking business. The USPS needs to focus on its mission, improve efficiency in distribution and protecting the sanctity of the mail for its customers and not get sidetracked into something it has no business in being involved with. We have other federal institutions for that.
May 4th, 2009 at 9:40 am
I don’t see a need for a postal savings system. The Postal Service cannot seem to manage the billions of dollars it currently earns. How would it be able to manage potential millions of dollars in deposits…and, is it qualified to “really” manage those dollars? Also, what role would congress play? What entity would really get to take advantage of those potential large sums of deposits??? Hummmmm…