Can postal banking deliver?

In 1911, following yet another financial panic, United States banks had a dodgy reputation. So, the trusty U.S. Postal Service began offering savings accounts and other financial services, backed by the government’s full faith and credit. Deposits reached $1.2 billion during the Great Depression. But the teller windows closed in 1966 when banks were offering a combination of insured accounts, more services and more branches, and paying higher-than-postal-service interest rates for savings.

Advocates say it’s time to revive postal banking. Banks pay negligible interest and are closing branches in inner cities and rural areas, leaving millions in the hands of predatory “payday lenders,” whose interest rates can reach triple digits. Studies estimate that as many as 25 percent of American households lack access to adequate banking services and pay $89 billion each year in fees to bank alternatives.

Also, in 2006, Congress mandated that the U.S. Postal Service prepay 75 years’ worth of employee retirement benefits within 10 years, causing the postal system to become insolvent. If U.S. post offices — like those in Switzerland, India and Japan, among other nations — could accept savings deposits, make short-term loans and offer prepaid debit cards, among other basic services, the profits could help right the system’s finances, keep rural and inner-city branches open, and give the “underbanked” access to banking services at reasonable costs.

The idea has found a growing number of champions in Congress and among community activists. All that’s needed to reopen the post office’s teller windows is a vote by the post office’s board of governors and the Postal Regulatory Commission, along with Federal Deposit Insurance Corp. approval. Postal system administrators are mulling an internal report that suggests pilot tests in key geographic areas.