An Empirical History of the US Postal Savings System

Abstract

Seeking to reach the unbanked, the US Postal Savings System provided a federally insured savings alternative to traditional banks. Using novel data sets on postal deposits, demographic characteristics, and banks, we study how and by whom the system was used. We find the program was initially used by nonfarming immigrant populations for short-term saving, then as a safe haven during the Great Depression, and finally as long-term investments for the wealthy during the 1940s. Postal Savings was only a partial substitute for traditional banks, as locations with banks often still heavily used Postal Savings.

The U.S. Postal Savings System and the collapse of building and loan associations during the Great Depression

“…In both periods, small‐scale depositors were often locked out of the traditional banking system. In the 1910s, immigrants and minorities were often prevented from banking in many places due to discrimination (Sprick Schuster et al, 2020); today, households that are unable to maintain the required minimum balances find commercial banking more costly, and therefore are less likely to be protected by deposit insurance.…”

“…Postal savings data come from Sprick Schuster et al (2020). They digitized the annual amount of deposits in each post office from the Annual Reports on the Operation of the Postal Savings System .…”

“…The literature on postal savings banks has focused on the patterns of usage (Kemmerer, 1917; Schewe, 1971; Sprick Schuster et al, 2020) or on postal savings' response to commercial bank failures (Davidson & Ramirez, 2016; Kuwayama, 2000; Sissman, 1936). Similarly, the literature on B&Ls has focused on their popularity at an aggregate‐level (e.g., Bodfish, 1931, 1935; Clark & Chase, 1927) or the role they played in the success of the mortgage market during the 1920s and 1930s (Courtemanche & Snowden, 2011; Fishback et al, 2013; 2019; Fishback, Troesken, et al, 2011; Fleitas et al, 2018; Rose, 2014).…”

“…5 As a result, S&Ls became the dominant mortgage lenders by the beginning of the 1940s, and B&Ls dramatically declined in number and importance (Rose, 2014;Snowden, 2003;2010). The government also assisted B&Ls 1 See Sprick Schuster et al (2020) for a discussion of the political economy of the Postal Savings System. 2 As Fleitas et al (2018) extensively discuss, the SAC is a combination of an interest-only, balloon loan with an indefinite maturity for which the borrower made monthly interest payments with a pledge to purchase installment equity shares in the association until they were equal in nominal value to the principal of the loan.…”

“…The negative correlation in Figure 1 is suggestive of competition between postal savings banks and B&Ls, but there are additional reasons to believe the two competed with each other. Sprick Schuster et al (2020) argue that the surge of postal savings deposits in the 1930s was the result of flight-to-quality behavior. For example, Representative Emanuel Celler of New York stated that, "While banks were failing all over the country and a veritable avalanche of funds came out of other banks, it was the Postal Savings System that salvaged much of the money withdrawn by the frightened and the timid" (Congressional Record, December 9, 1931, p. 235).…”