Policymakers say that postal banking could offer financial support to underserved people while saving an American institution.
In the early 1900s, Americans had such faith in the U.S. Postal Service that they trusted postal carriers to ship their children, just like any other parcel.
Today, although 74 percent of Americans approve of the Postal Service, the public’s trust has not translated to the institution’s financial stability. Over the past 11 years, the Postal Service has lost almost $70 billion in revenue. This financial hardship—combined with the challenges created by the COVID-19 pandemic and compounded by preexisting competition from privatized shipping—leaves the Postal Service’s future in question.
The solution, some policymakers suggest, is to revitalize a discontinued government program that would transform post offices into public community banks.
Proponents of postal banking suggest that it could relieve the Postal Service of its financial problems and provide an important service for consumers. Postal banking would provide “low-cost, consumer-driven” bank services, such as check cashing and small lending, to people who are not able to, or would prefer not to, access private banking systems. By providing these basic services, the Postal Service could reach individuals with limited access to financial and banking services. Through the program, the Postal Service could also secure its own survival, according to Senator Elizabeth Warren (D-MA).
A postal banking system is not a new concept. The Continental Congress founded a postal service before its members signed the Declaration of Independence. At that time, the new service united fractured communities and bound the country’s people together. Today, the Postal Service states that its history is rooted in the principle of providing equal service to all people, “no matter who, no matter where.”
Congress created the U.S. Postal Savings System in 1911 to further that mission and offer a public banking option to marginalized households and unbanked people. Calls to broaden public access to the system grew throughout the 1920s, but private banking’s collapse during the Great Depression spurred farmers and labor organizers to push for a public national banking system. At the same time, public distrust in private banking caused the Postal Savings System to flourish.
Despite a grass-roots campaign to nationalize all financial institutions, a national public banking system never materialized. Instead, the government reformed the financial sector, and private banking regained some of the consumer trust it had lost. Consequently, Congress abolished the Postal Savings System in 1966.
Some politicians have called for the re-establishment of the Postal Savings System. Senator Bernie Sanders (D-VT) included the plan in both of his recent presidential campaign platforms, and Senator Kirsten Gillibrand (D-NY) proposed legislation in 2018 that would revive and expand the system. Senator Gillibrand’s plan would have incorporated retail banks into 30,000 pre-existing locations administered by the Postal Service, a plan that tracked a proposal developed previously by law professor Mehrsa Baradaran.
This past September, Senators Sanders and Gillibrand together reintroduced the system in a bill to fund the Postal Service and provide financial reprieve for families affected by the pandemic. The core of their proposal, according to Senator Gillibrand, would provide 10 million people in underserved communities with access to essential financial services.
In addition to providing consumers with financial options, the Gillibrand–Sanders bill would also offer the Postal Service much needed revenue necessary for its financial viability.
Senator Gillibrand also recognizes that the Postal Service is the only institution in the United States that already serves every community—making it the perfect conduit for community banking. As big banks abandon low-income and rural areas, the Postal Service remains an equalizing force because of this reach.
Even if the Postal Service is unable to turn a profit through the banking program, advocates argue that providing financial support to unbanked people is a necessary goal. Regardless of broader societal benefits, some postal banking critics worry that because the postal service currently loses money every year, taxpayers could also end up paying for a failed postal banking system.
According to Professor James O’Rourke, however, the Postal Service runs at a deficit because Congress holds it to a more demanding retirement funding program than other government agencies. The post office must pre-fund its employee retirement 75 years in advance. Without that requirement, the Postal Service would operate at a profit.
A report by the USPS Inspector General showed that—at least before the COVID-19 pandemic—postal banking could generate $9 billion in revenue for the Postal Service every year. If true, even with the mandated retirement system, new revenue from postal banking would exceed the Postal Service’s yearly deficit.
Still, some critics of postal banking have called the proposal anachronistic, while others posit that post office banks in underserved areas might not profit any more than traditional bank branches.
Despite potential benefits, a postal banking system would entail significant investments in services, employees, and security. The upheaval caused by the COVID-19 pandemic could serve as the impetus for Congress to make that investment.
People still trust the Postal Service, and the economic turmoil caused by the pandemic has left an increasing number of Americans unbanked. A postal banking system worked for an economic crisis once: during the Great Depression. If proponents of the system are correct, perhaps underserved Americans and the Postal Service could rely on one another once again to weather the current economic emergency.