Two key examples
Successful public banking models from history revived for today's needs
In the past few years, lawmakers, administrators, and advocates have introduced two public banking models to address today’s problems that worked exceptionally well in U.S. history.
Postal banking: In 2021, the USPS launched a pilot program in four select cities (see below) to offer a version of postal banking to customers.
National Infrastructure Bank: The proposed National Infrastructure Bank (NIB) now before Congress as HR 3339 is modeled after Roosevelt’s Reconstruction Finance Corporation (RFC), which was instrumental in pulling the U.S. out of the Great Depression in the 1930s.
The crisis in access to basic banking services across the country is staggering. In many places, the only access to basic financial services is from costly nonbank businesses such as payday lenders.
From 1911 until 1967, local U.S. post offices provided basic banking services. In the Fall of 2021, the U.S. Postal Service (USPS) launched pilot programs in four cities offering check cashing, bill pay, and low-fee ATM access, as well as upgraded money orders and wire transfers. At these locations, people can use their payroll or business checks for up to $500 to buy single-use VISA gift cards and pay bills.
The USPS has indicated it intends to expand the program early in 2022, making financial services more accessible and less expensive to millions of Americans.
A University of Michigan study published in May 2021 found that 69% of census tracts having a post office do not have a community bank branch. According to a 2019 report by the Federal Reserve, 22% of American adults, or 63 million, are either “unbanked” or “underbanked,” meaning they don’t have easy access to a financial institution for basic services such as cashing checks and saving money. Unbanked and underbanked households currently spend over $40,000 over a lifetime in deposit and checking fees and pay up to 400% interest on payday loans.
A modern postal banking system could give people the ability to access basic banking services in any post office in any ZIP code in the country, potentially saving them substantial amounts of money.
The pilot was launched in four locations, though only one post office in each pilot city is participating:
- Washington, D.C.
- Falls Church, Virginia
- Baltimore, Maryland
- The Bronx, New York
According to a 2016 report, 91% of postal offices worldwide provide financial services, either directly or in partnership with other financial institutions. Studies also show postal offices are better than other financial institutions at reaching excluded segments of the population such as women, the poor, the less educated, and those in the informal economy. The report concludes:
Posts are thus key financial inclusion players at the global level and postal networks should therefore be an integral part of discussions when governments, policymakers and international organizations design strategies for fostering financial inclusion.
This quick video produced by PBI in 2020 shows how other countries are thinking outside the mailbox when it comes to postal services.
Here are several additional useful articles, reports, books, and links:
USPS Begins Postal Banking Pilot Program | David Dayen, The American Prospect
The post office is finally going to try out being a bank | Talib Visram, Fast Company
Postal Service Launches Banking Pilot With Hopes to Expand in Early 2022 | Eric Katz, Government Executive
Postal Banking Is Finally a Reality in (Some of) the United States | Donald Cohen, In These Times
An Empirical History of the United States Postal Savings System | National Bureau of Economic Research, May 2019
How the Other Half Banks | Mehrsa Baradaran, 2018
National Infrastructure Bank
According to the American Society of Civil Engineers, nearly $6 trillion is needed to bring America’s crumbling infrastructure into good repair. The recently passed Infrastructure, Investment, and Jobs Act (IIJA) provides $550 billion of new money, but that is less than 10% of our real needs.
HR 3339, the National Infrastructure Bank bill, can fill the gap in infrastructure funding without requiring new federal spending or federal taxes. Modeled on the Reconstruction Finance Corporation (RFC) that pulled America out of the Great Depression, the proposed NIB will be capitalized at $500 billion, which can be leveraged to $5 trillion in loans, using debt-for-equity swaps: existing Treasury debt will be swapped for non-voting bank shares with a 2% dividend.
Set up during the administration of Pres. Herbert Hoover and greatly expanded under Franklin D. Roosevelt in the 1930s, the RFC funded tens of thousands of projects that still benefit us today.
Low-cost RFC loans were often augmented with complementary New Deal relief programs such as the Works Progress Administration (WPA), the Public Works Administration (PWA), and the Civilian Conservation Corps (CCC).
- Loaned or invested over $40 billion from 1932 to 1957
- Issued bonds, mostly bought by the Treasury
- Funded the New Deal and World War II
- Did all this while providing a net profit to the government of $690 million
Reconnecting with the scale and utility of historic projects brought about by the RFC can give us perspective on the potential of a national infrastructure bank in responding to the needs of the real economy and local environment. A recent PBI article describes some of these often iconic projects.
A recent video from the Coalition for a National Infrastructure Bank illustrates how the NIB will enable the US to meet its real infrastructure needs.