Postal banking used to work in the United States and it will work again.


Last week John Oliver gave a presentation on payday loans, describing them as “the circle of debt” that “screwed us all up.” And by the end of Oliver’s withdrawal from payday loans, Sarah Silverman offered better alternatives to low-income borrowers, including donating blood and jumping in front of the cars of the rich. But there is a burgeoning alternative to usurious payday loans: postal banking, which allows low-income Americans to do their banking – from paying bills to small loans – at the same post office where they shop. stamps. As states attempt to regulate the payday lending industry, their desperate clients may be pushed into the black market or into bankruptcy. Postal banking is a much better solution. It’s time to consider a “public option” for small loans.

Every other developed country in the world has postal banking services, and so do we. It is important to remember this forgotten story as we begin to talk seriously about reviving postal banking because the system has worked and it has worked well. Postal banking, which existed in the United States from 1911 to 1966, was in fact so central to our banking system that it was almost the alternative to federal deposit insurance, and served as such from 1911 to 1933. The system prevented numerous bank runs during a turbulent period in the country’s banking history – essentially performing central bank functions before the Federal Reserve was up to the task. The postal bank helped finance two world wars and cut a huge public deficit after the Great Depression.

Postal banks started in Britain in 1861 and from the start the main focus was financial inclusion. But in the United States, postal banking services had other uses as well: in 1871 President Ulysses S. Grant’s post office manager John Creswell proposed postal savings banks to finance a new telegraph system. President Grant himself has supported postal banks as a way to free up money accumulated in remote areas of the country. But the country’s bankers opposed it. They objected to the idea that all deposits would go directly to the Treasury. Everyone feared centralized banking power, and localism in the banking sector was as sacred as the Constitution of the day. The American Bankers Association opposed the competition with the federal government. Ideological opponents called him Communist, Socialist and Paternalist. While they claimed that private markets and savings banks were sufficient, in fact 98% of all savings banks were in the five northeastern states, leaving the South and West virtually bankless. .

Once the idea came up, nine postmasters and almost all of the presidents except Grover Cleveland pushed the question to 40 years. Almost 100 bills died in Congress before anything happened.

After the panic of 1907 (a panic that started on Wall Street and led to bank runs across the country), the momentum finally shifted. In the 1908 presidential election, banking reform became a major issue, with William Taft actually campaigning on postal banking as a means of stabilizing the banking sector and helping credit-strapped regions like the South and the west. Taft won and his administration started the postal bank.

Taft’s clear support for the postal bank and his electoral mandate was still not enough to defeat the banking and Democratic opposition. The Postal Savings Bank Bill, as passed, ultimately nodded to both localism and private bankers by requiring that nearly all postal deposits remain in the home community. The debate at the time on the need for postal banks is now enlightening. Opponents claimed that anyone with money to save had already saved it. The Boston Globe said: “It’s pretty easy for anyone to find a savings bank; the problem is to find the savings to put there. Others argued that the reason people in rural areas did not save in banks was due to “the ignorance of the common people” or because “people in remote rural areas are not so well. placed in the bad manners of the world than those who have the opportunity to by perusing the daily newspapers. In other words, some people are just too dumb and too poor to take it. Today we hear similar claims that the problem of the poor and the unbanked is that they “lack financial literacy” or simply don’t have enough money to open a bank account. The truth is, they are highly educated, but they either don’t trust the banks or the banks left their neighborhood years ago, leaving only payday lenders.

The bill was finally passed in 1910 and created what was called the United States Postal Savings System. * Interest on accounts has been set by law at a low 2.5% to avoid luring customers away from banks . Postmasters and supportive members of Congress have also called postal banks “the banks of the poor” to put bankers at ease. Accounts were capped at $ 100 of authorized deposits per month and a total savings limit of $ 500, the limit being raised to $ 2,500 in 1918.

By 1913 (barely two years later), banks had received $ 32 million, most of which came from “storage banks,” as reported in Le Mans. New York Times in 1913. The Times reported with frustration that many larger deposits had been turned down and that the current deposits were likely a fraction of those available. Princeton University historian Sheldon Garon says it was these caps and concessions that ultimately doomed the postal banking system in the United States. And ultimately, it was not southerners and westerners who needed the banks most as expected (although they did eventually). It was the raft of recent immigrants to urban areas who immediately turned to these banks. The reason (from the testimony of Congress in 1913): “Hundreds of thousands of our newly appointed citizens are suspicious of banks and will not patronize them. They have absolute confidence in the government and know what postal savings banks are. The post office offered information to customers in 24 languages and distributed leaflets just outside ports of entry into the United States. Therefore, the most active postal banks were those located right next to the ports. In 1915, immigrants owned more than 70 percent of postal bank deposits even though they made up less than 15 percent of the population. There were deposit accounts from stockings and cans with rotting paper money and rusting coins.

In 1934, postal banks had $ 1.2 billion in assets – about 10% of the entire commercial banking system – as small savers fled failed banks to the safety of a government-backed institution. And this trend could have continued if President Franklin Delano Roosevelt had not in mind a broader banking reform. But Roosevelt chose the FDIC over the postal bank as a way to stabilize things. Ironically, the same Roosevelt who forged an unprecedented expansion of the federal government during the New Deal would choose a bank-funded insurance plan as opposed to a public banking system.

But even that was not the end for postal banking. FDR used postal banks to sell treasury bills in 1935 to pay off the budget deficit after the Great Depression. In 1941, postal banks began selling “defense savings stamps” to help finance the war. The campaign was a phenomenal success. By the end of World War II, the government had raised $ 8 billion in war funds from the post office alone.

Deposits also peaked in 1947 with nearly $ 3.4 billion and 4 million bank users in their post offices. Part of the reason for this is that in 1940 the Post brought the world to banking by mail, which attracted soldiers stationed overseas.

But it was the beginning of the end. In 1946, 68 percent of the country’s cities had both postal savings deposits and banks. And because banks could charge higher interest than the post office and were just as secure, the USPSS was no longer an attractive option for deposits. This is no longer true today because banks have been squeezed from all sides by money markets, capital markets and foreign banks. Banks began to abandon poor areas and post offices remained, but without banking services. And once banks deserted low-income neighborhoods from the 1970s, high-cost payday lenders and check tellers flocked.

In 1965, the post general managers began to approve the end of postal banking services. In 1966 it was officially abolished as part of the streamlining of the federal government by Lyndon Johnson. The postal banking system died a quiet death without public debate. The public and the press have failed to notice the centrality of postal banking in one of the most turbulent times for banking in our country. Postal banking has been America’s most successful experiment in financial inclusion, an issue we face again today. As we ask ourselves if it has a place in our future, we must remember the vital role it has played in our past.

* Correction, August 19, 2014: This post originally said that the bill creating the United States Postal Savings System was passed in 1911, but it actually passed in 1910. (To recover.)

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