Public Banks: Postal Banking, Fed Accounts, and State-Owned Banks

Position

• ICBA opposes the provisioning of deposit services and the allocation of credit to consumers, businesses, non-profits, or governmental entities by the United States Postal Service (USPS), the Federal Reserve, or any other federal, state, or quasi-federal or state instrumentality.
• The financially challenged USPS has virtually no expertise in providing financial services to consumers in a cost-effective manner. Greater entry by the USPS into financial services introduces another tax-advantaged and lightly regulated entity with limited expertise into the marketplace, akin to credit unions and the Farm Credit System.
• ICBA opposition extends to the creation of special purpose banks to service the cannabis industry or a National Infrastructure Bank.
• Community banks offer affordable accounts for unbanked and underbanked consumers, raising questions about the need for FedAccounts and their ability to attract consumers. Financial services are best provided in a competitive, private, and free marketplace that openly and efficiently benefits customers.

Background

Postal Banking.

There a persistent interest among certain lawmakers in allowing the United States Postal Service (USPS) to offer retail banking services.

It would be a serious mistake for the USPS to enter a highly competitive, complex new industry with the potential to ruin itself and its core function and put American taxpayers at further risk. Effective banking management requires years if not decades to master. Moreover, an agency that has failed to curb much less prevent growing mail theft (an ongoing source of check fraud which is costly for community banks and their customers) must not be entrusted with banking.

State Banks.

In recent years, several states and localities around the country have considered proposals to create public banks to operate in competition with the thousands of existing private, for-profit, taxpaying banks that serve our communities.

Public banks create undue risk and exposure for taxpayers. Their deposits, if they choose to forgo or are not provided access to FDIC deposit insurance, would be backed by the full faith and credit of the state or municipality that chartered them, posing substantial risks to taxpayers, a risk heightened by lack of federal supervision. Further, such banks would be subject to political manipulation as favored groups would receive credit and other services on preferential terms. Credit should be allocated on an impartial basis to ensure sound lending and a competitive economy.