by Jeff Sovern
There's been a lot of discussion recently about whether the Post Office should offer banking services. The idea is that it could serve the unbanked, and that its many existing branches would cover the entire country (Disclosure: one of my brothers works for the Postal Service, though we haven't discussed this idea). For example, Adam Levitin had something in the American Banker here. Other American Banking coverage of the proposal can be found here, here, here, and here (some behind paywall). Now Mehrsa Baradaran of Georgia has written It’s Time for Postal Banking, forthcoming in the Harv. L. Rev. F. Here's the abstract:
This essay makes the case that the USPS is in a unique position to provide much-needed financial services for the large population of unbanked or underbanked Americans. First, the post office can offer credit at lower rates than fringe lenders by taking advantage of economies of scale as well as their position in the federal bureaucracy. Second, they already have 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.
This essay moves one step further by demonstrating why government support and even subsidies to enable the endeavor 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 loans. Postal banking derives from these longstanding practices, but broadens the scope to include the poor and not just the middle class. Further, state support of banking throughout U.S. history has operated much like a social contract: the state supports the banking system in a variety of ways and in return, banks are to be 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 a portion of their obligation, but a large portion of the population — the poor — have been left out. It is time, then, for the government itself to meet the demand for credit.