A Shorter History of Postal Banking

This post contains excerpts from Mehrsa Baradaran's article "A short history of Postal Banking" originally published by Slate.com

Every other developed country in the world has postal banking, and we actually did too... and it worked well.

Postal banking helped fund two world wars and reduced a massive government deficit after the Great Depression.

In 1871, President Ulysses S. Grant’s postmaster general, John Creswell, proposed post office savings banks... But the nation’s bankers opposed it. They objected to the notion that all the deposits would go directly to the Treasury.

Nine postmasters and almost every president, except Grover Cleveland pushed the issue for 40 years. Almost 100 bills died in Congress before anything happened.

1908...William Taft.. postal banking as a way to stabilize the banking sector and help credit-starved regions like the South and the West.

1910... created the United States Postal Savings System. Interest on accounts was set by statute to a low 2.5 percent to avoid luring customers away from banks... Accounts were capped at $100 deposits allowed per month and a total savings cap of $500—the limit was raised to $2,500 dollars in 1918.

Princeton University historian Sheldon Garon claims that it was these caps and concessions that ultimately doomed the postal banking system in the United States.

By 1915, immigrants owned more than 70 percent of the postal bank’s deposits even though they were less than 15 percent of the population.

So central to our banking system that it was almost the alternative to federal deposit insurance (FDIC).

By 1934, postal banks had $1.2 billion in assets—about 10 percent of the entire commercial banking system—as small savers fled failing banks to the safety of a government-backed institution... But Roosevelt chose the FDIC over postal banking as a way of stabilizing things.

FDR used the postal banks to sell Treasury bonds in 1935 to pay off the budget deficit after the Great Depression. In 1941, the postal banks started selling “Defense Savings Stamps” to help fund the war. The campaign was a phenomenal success. By the end of World War II, the government had raised $8 billion in war funding from the post office alone.

In 1965 the postmaster generals started to endorse ending postal banking.

In 1946, 68 percent of the nation’s towns and cities had both postal savings depositories and banks.

Deposits reached their peak in 1947 with almost $3.4 billion and 4 million users banking at their post offices. In part because in 1940, the post office introduced banking by mail.

In 1966 it was officially abolished as part of Lyndon Johnson’s streamlining of the federal government. The postal banking system died a quiet death without public discussion.