Those who have been following the presidential campaign in the United States are undoubtedly familiar with the proposal by Democratic candidate Sen. Bernie Sanders to allow the United States Postal Service to offer banking services at its post office branches.
What many are not familiar with is that this idea was already tried in the past and failed miserably, ending in 1967. As an independent federal agency that no longer receives appropriated funds and therefore tries to pretend that it is a private corporation. Yet it is run by a Presidentially-appointed board of governors that is responsible for all business decisions. The results are predictable. Costs are high, revenues are low, Post Offices are understaffed, customer service is lacking, and lines and wait times are often long. Ask anyone who has ever had to do business with both a bank and a Post Office which they would rather deal with and you’ll almost universally hear that it’s the bank.
Sanders and others who propose postal banking claim that they want to serve the unbanked and underbanked. But there is a reason so many people are unbanked or underbanked. For many, it is a conscious choice. They would rather hold their money themselves than trust the banking system. For others, especially immigrants, the crackdown on financial privacy in the wake of 9/11 in the form of enhanced Know Your Customer laws makes it difficult for them to get bank accounts even if they want to. Unless postal banks were granted an exemption from compliance with those laws (highly unlikely), it is difficult to see how those individuals would be aided by postal banking. Then there are others who are unable to manage money, overdraw their accounts on a regular basis, and therefore impose a cost on the banking system. Forcing Post Offices to serve those people will impose even more costs on an already-unprofitable Postal Service while not providing any new revenue. The only way to make up for that would be for the government to subsidize those accounts, which isn’t a viable long-term solution. Then you have the fact that the Postal Service is run by a Board of Governors that sets policy but is responsible to the President and Congress, not to the profit and loss motivations of the market, and you have a recipe for banking services policies that will prove to be disadvantageous to consumers and inflexible in changing to meet consumer demands.
The ultimate solution to providing banking services to the unbanked and underbanked is to free up banking competition by lowering barriers to entry and eliminating burdensome anti-privacy laws and regulations that increase costs to banks and make it more difficult for low-income people to open bank accounts. People like Sen. Sanders and Sen. Elizabeth Warren (D-MA) complain that too many people lack access to banking services, while at the same time they endorse laws such as Dodd-Frank that continue to centralize banking services among a handful of large banks, and anti-terrorism and anti-money laundering laws that make it more costly to banks to maintain accounts and more burdensome for people to open bank accounts. The policies they support (with the aim of attacking the rich) are directly responsible for the problem of poor people being unable to open bank accounts. There is a market out there for banking services to those people, and the reason they are not being served isn’t due to a market failure but rather to government policies that restrict consumer choice. Rather than returning to an already-failed system of postal banking, let’s open up the banking market to allow more companies to offer more services to the unbanked and underbanked.