To Save Post Offices, Turn Them Into Public Banks

By Tim Fernholz, GOOD

21 December 11

didn't get any mail today, or the day before. I'm not the only one lacking in pen pals: From 2006 to 2010, mail volume declined by 20 percent, and it's going to keep dropping. We're doing a lot more of our correspondence online these days, and that decline in business is putting the U.S. Postal Service - a government enterprise that would rank 29th on the Fortune 500 if it were a business - in an increasingly precarious spot, forcing us to figure out how to keep mail service solvent.

To start eliminating the USPS's billion dollar deficits, most plans focus on cuts: ending Saturday delivery, cutting more jobs, and renegotiating employee contracts to cut wages and benefits. Some of that is probably necessary, or will be, as physical mail continues its decline, but this isn't the economic time to cut tens of thousands of jobs. Instead, why not look at this from a business perspective and find a new way to make money? Let's keep the Postal Service alive by having it offer a public option for banking.

Postal banking has a proud tradition abroad - France, Italy and Germany all have successful postal banks, and England is debating postal banking as a possible response to its own postal woes. We've even had the practice before in the United States: Between 1911 and 1966, the USPS accepted savings deposits, peaking at 1947 with 4 million depositors vouchsafing some $3.4 billion.

The USPS Bank wouldn't be involved in complex transactions; instead, it'd provide basic checking and savings functionality. Traditionally, postal banks attempted to get low-income and unbanked people into the financial system, and they could play that role today, when roughly 9 million Americans don't have a bank account and 21 million rely largely on fringe financial services like usurious check cashers rather than traditional financial institutions. Giving low-income people access to a safe banking system will firm up their economic futures.

As an enterprise, the USPS is uniquely positioned to rectify this problem: It has a lot of a branches around the country, a lot of data about where people are, and already has a successful business processing money orders. It's also one of the most trusted institutions in America at a time when people do not have much trust for banks.

Just like a public option for health insurance, a public option for banking would likely have beneficial competitive effects, offering a low-risk financial services baseline as an alternative to more fully featured or risky private banks. While those private banks (and conservatives skeptical of government intervention in the market) probably won't like USPS entering the banking space, perhaps they could be persuaded by the argument that such a move would require serious deregulation.

It's worth noting that a large number of critics have pointed out that the USPS's fiscal crisis is somewhat self-imposed: In 2006, Congress gave USPS 10 years to save up for 75 years of health benefit payments, an unusually short window of time. Absent that provision, the USPS would likely be running a surplus, and so a block of congressmen are fighting to overturn it.

But the financial pressure on the USPS isn't going to disappear in the future, and adding a retail finance business could help life its bottom line while providing a much-needed boost to economic development and a fairer banking system.