history has operated much like a social contract: the state supports the banking system in a variety of ways and, in return, banks serve as credit intermediaries, providing the populace with access to loans and financial services. Thus, subsidies for banking have been justified because they provide a benefit to all citizens. Mainstream banks have met part of their obligation, but a large portion of the population, namely the poor, has been left out. It is time, then, for the government itself to meet the demand for credit.
This Essay moves one step further by demonstrating why government support and even subsidies to enable postal banking in the United States are appropriate and justifiable. First, banking-related subsidies are grounded in historical practice, as demonstrated by government support for credit unions, savings and loans, and student loan associations. Postal banking derives from these longstanding practices, but broadens the scope to include the poor, not just the middle class. Further, state support of banking throughout U.S. 8 First, the Post Office can offer credit at lower rates than fringe lenders by taking advantage of economies of scale as well as its position in the federal bureaucracy. Second, it already has branches in many low-income neighborhoods that have been long deserted by commercial banks. And third, people at every level of society, including the unbanked, have a level of familiarity and comfort with the Post Office that they do not have with more formal banking institutions. 6Īs I have written previously, 7 and banking-industry concerns notwithstanding, the USPS is in a unique position to provide much-needed financial services for the large population of unbanked or underbanked Americans. 5 But anticompetitive concerns - namely that a large, well-funded competitor will cut into banks’ business - likely play a role too, as they did in 2005 when Walmart attempted to obtain a banking charter. 3 The proposal was immediately criticized by the banking industry as “the worst idea since the Edsel.” 4 The main stated concern is that the Post Office lacks the institutional capacity to provide financial services. 2 Senator Elizabeth Warren has also publicly expressed support for the idea. Postal Service (USPS) released a white paper that proposed that the USPS consider offering financial services to the underbanked. 1 After decades of unsuccessful regulatory proposals, the solution may finally be at hand. On January 27, 2014, the Office of the Inspector General of the U.S. One of the biggest problems in banking today is the large and ever-increasing population of the unbanked - those who are not gaining the benefits of the regulated banking system and must rely on high-cost fringe lenders to do simple transactions like cash their paychecks. The Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau have listed this problem as a top agenda item.
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