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A Public Option for Simple Banking

The US Postmaster General pleaded with lawmakers yesterday to help him avert a complete shutdown of the US Postal Service through default. The Postal Service could miss a scheduled $5.5 billion retirement benefit payment at the end of the month, and cash could run out by next summer, leading to a shutdown of operations.

The Postmaster General, Patrick Donohoe, has a mostly conservative mix of options for righting the Postal Service’s finances:

Arguing that the service suffers from a “restrictive business model,” Donahoe said that Congress needs to pass legislation that would make the independent agency more like “a private-sector business.”

“We do not have the flexibility to achieve these cost reductions,” Donahoe said.

As part of those cost reductions, Donahoe said he would like to shed more than 100,000 postal workers who are now covered by no-layoff clauses in union contracts; move new employees from a defined-benefit plan to a lesser defined-contribution plan; and eliminate the service’s mandatory annual payment into employee health benefits. The plan would also close around 300 of the postal service’s 500 processing centers, shutter thousands of post offices around the country, and eliminate Saturday delivery. Many of those actions would require a mandate from Congress.

Laying off 100,000 workers could not come at a worse possible time, obviously. And this would be accomplished by breaking a contract signed with the postal workers’ union just five months ago; among the elements of that plan is a rider that restricts layoffs. Reps. Elijah Cummings and Stephen Lynch of the House Overisght Committee, which has jurisdiction over the Postal Service, wrote a letter to the Postmaster General yesterday, strongly opposing the abrogation of the no-layoff policy:

Specifically, one of the requests you have made to Congress is for statutory authority to dissolve the “no lay-off” provisions contained in labor agreements presently in effect with all four of the Postal Service’s bargaining units. We agree that the serious financial challenges facing the Postal Service must be resolved, in part, by reducing the postal workforce over time, but we disagree with your proposal to nullify portions of fairly negotiated labor agreements.

Just this past April, you reached a four-year agreement with the American Postal Workers Union that maintained the no lay-off provision. United States Postal Service, APWU Tentative Agreement Will Save $3.8 Billion (Apr. 5, 2011) (online at In testimony today before the Senate Committee on Homeland Security and Governmental Affairs, you lauded both this agreement and the sacrifices made by the employees it covers.

So the Postal Service already squeezed their workers, and now are looking to come back and lay a significant amount of them off.

The White House, while asking for a 90-day extension on the retiree benefits payment, is working on their own rescue plan for the Postal Service, and who knows what form that will take. But if they wanted to be innovative, the way to fix the Postal Service is clearly to allow it to take on more services, which would benefit consumers as well as their bottom line. Post offices have prime real estate in the center of communities, and would be well-positioned to give the public more value. Specifically, they could take on simple banking services, as postal services have done in other countries.

The problem, I think, is that for all that Republicans like deregulation, they really hate the idea of a state-owned organization competing with the private sector. Of course, the Post Office does that already — it competes with FedEx and UPS. But the USPS, as a government-subsidized organization with thousands of locations nationwide and a massive reserve of public trust, could be a formidable competitor in all manner of different markets and none of the incumbents in those markets would welcome the competition.

Over the long term, however, I suspect that the only way to save the Post Office will be to allow it to move into financial services. There’s a lot of expertise in the rest of the world when it comes to the questions of how to set up and run a post bank. Meanwhile, banks in the U.S. are mistrusted and disliked and many people would love to be able to just bank at the Post Office instead.

It might be too late now to set up a post bank — but I doubt it. (This is still a country, after all, where most people still use paper checks.) There’s a window of opportunity here. Let’s grab it, before it’s too late.

This is an incredibly good idea. Mail volume is dropping and it will continue to drop for some time. What little banking services the Post Office already provides, i.e. money orders, are incredibly popular. Wouldn’t it be great to have a “public option” for simple banking, which is all the majority of Americans need? I’m not saying the Post Office should sell mortgages or money markets or CDs. But holding onto cash and allowing check writing and ATM services is right within its wheelhouse.

I don’t totally see how the Postal Service survives without this kind of innovation. Their fiscal problems are actually easy to deal with in the short term: the Postal Service is the only agency that has to pre-fund 75 years of retirement benefits, leading to massive overpayments. They also have a lot of valuable land. But over the long-term, mail services are just going to shrink. With the tremendous financial corruption out there, the best option for regulators is to separate commercial and investment banking. The Post Office could be the means to do that.

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David Dayen

David Dayen