Postal savings banks are a venerable form of public banks. They were traditionally aimed at providing payment and savings options for the broad public — they were not banks providing a full range of lending services. Instead, they recycled deposits into the bond and money markets, mainly investing in central government bonds. The “neoliberal” trends since the early 1980s resulted in these institutions being weakened or even privatised. In addition to the political shifts, the rise of digital computing raised the level of expected services in most countries.
This is an unedited draft section of my banking primer. My inflation manuscript is looking at Brent Crude price charts and sobbing.
The Traditional Postal Banking Model
Postal banks arose in the mid-nineteenth century, along side the rise of the industrial working class that replaced subsistence agriculture. Great Britain first offered postal savings in 1861, followed by other countries. Subsistence farmers only have limited contact with the monetary economy, but workers with wages are largely integrated. Postal banks gathered savings from poorer workers that traditional banks largely ignored.
The reason that these are “postal savings banks” as the bank’s “branches” are post offices, which were spread throughout the country. That is, on top of offering postal services, it was possible to do basic bank transactions at the post office.
The postal banking corporation would then buy government bonds with the cash inflows from deposits. This allowed savings from workers to be recirculated to the rest of the financial system, as otherwise it would likely have been stuck in the form of hoarded banknotes.
Equivalent to Banking at Central Bank
One idea that was floated after the 2008 Financial Crisis was that households should have the ability to bank at the central bank due to the risk of bank runs. (Banking at central banks is not unheard of, the Bank of England used to take in some retail deposits.) A postal bank is financially equivalent to having a deposit account at the central bank. The deposits by households would add to central bank liabilities, and they would buy central government bond to match the liabilities.
Some could argue that they are not exactly equivalent, in the sense that the central bank is effectively immune to default. However, there is no practical difference if the postal bank is owned by the central government — both the central bank and the postal bank are subsidiaries of the Treasury (or local equivalent). Any default is going to hit all the entities. Furthermore, a postal bank of the traditional model which only has central government securities as assets is also equivalent to a Treasury bill fund, which is not a major default risk.
In practice, a central bank that would offer the public deposits is going to end up with the retail banking arm being a largely independent entity. Central banks have zero expertise in dealing with retail customers or offering retail payments. Furthermore, they lack a branch system. So it would have to be a completely new group handling that work, with almost no skill overlap beyond the internal information technology infrastructure. Since the main assets are to be used are post offices, it makes more sense to put the postal bank within the post office bureaucracy.
Japanese Post Bank
The Japan Post Bank has the most noticeable impact in global capital markets. It was founded in 1875, but the process of privatisation was started in 2007. In March 2025, it had 13.59 million accounts. It has an automated teller machine (ATM) network as well as an internet banking arm (Yucho Internet Home Service). It also has partners who offer services, as well as offering commercial services. The deposit base started at 20,000 yen in Fiscal Year 1875, and peaked at 249 trillion yen in Fiscal Year 2000. (Statistics herein are mainly from the 2025 Annual Report.)
The asset side balance sheet of the Post Bank is dominated by securities and lending to banks, and deposits are the main liabilities. In 2025, the non-consolidated balance sheet had 233 trillion yen in assets, with 41 trillion being yen bonds, 91 trillion foreign currency securities, 64 trillion lent to banks, and 35 trillion in “other” assets. On the liability side, deposits (both ordinary deposits and term) were 190 trillion, and 43 trillion in “others” (including equity). To put the size of the deposit base in perspective, it held 20% of total household deposits in Fiscal Year 2024 (as given by their website).
The large foreign holdings of the bank are representative of Japanese balance sheets — local investors recycled Japan’s current account surplus by holding foreign currency bonds rather than Japanese Government Bonds that historically had yields much lower than international peers. (The New Keynesian central bankers elsewhere fixed the persistent yield gap after the 2008 Financial Crisis.) Although this makes the Japanese Post Bank more exotic than other institutions, they still mainly have securities and wholesale bank lending as assets — not a loan book.
Similar Institutions
Postal banking is a reduced form of what I refer to as “traditional banking”: offering deposit-taking and payments services to (mainly) retail clients. However, it is missing the exciting part of traditional banking: lending operations to clients, which is what allows “money creation.” Instead, it is an asset-gathering operation like a mutual fund complex.
The private sector can do similar strategies.
One rare strategy is for a retailer with a large store footprint to set up banking services. In Canada, there is President’s Choice Financial associated with the major grocery chain Loblaw’s (which has the house brand “President’s Choice” — the chocolate chip cookies are great), which has a Schedule I bank acting as the banking agent.
A more common strategy now is an internet-based bank. Technology companies are already sticking their noses into payments systems, and there are some financial firms that just offer online banking. In Canada, the Dutch ING bank set up an internet bank with a high savings account, although that operation was later bought by a Canadian bank and operates as the stand-alone Tangerine financial. The advantage of an internet-based bank is that it skips over the need for a branch system, and can gather deposits from across the country.
Postal Banking Great… In the Old Days
Using the nation’s post offices to offer basic payments services is efficient, and is definitely a great idea if you are sent back to a point in time before the 1980s. The problem more recently is the technological leaps in banking. If you are trundling around paper cheques (“checks”) and banknotes, pretty much anyone can get people to carry sacks of paper around. However, paper cheques are largely extinct in most of the developed world. (They survive in Canada, although people just take photos of them to cash them in on their banking app.) People now expect safe and sophisticated electronic systems (as well as ATM’s to get cash), and building and maintaining those systems is a major effort. (The “technology” people in Silicon Valley keep trying to enter into mainstream finance, with varying levels of success.)
Unless one already has an existing postal banking system, it is very hard to justify building a new system from scratch in most countries. The banking system is already efficient, and the payments systems sophisticated. If the government is concerned about poor people without access to the banking system, it is going take less resources to mandate/subsidise accounts serving such people than trying to build a new system that will barely be used. You can just take in bids to offer services in post offices from existing players if you want to use them as branches.
The United States is quite probably an exception to the previous statements. The payments system is a mess, and the banking system balkanised. A new national system of postal banking could be a good use of resources. Of course, protecting such a system from being vandalised by an incoming administration that seeks to deliberately destroy state capacity is a much greater problem at the time of writing.
What About Public Money Creation?
This section discusses the traditional postal banking model — which are deposit-gathering operations. However, this opens up a response from progressives — we need to move beyond deposit taking, and have the public postal bank harness the power of money creation. That is to say, offering direct loans. That possibility will be discussed in a later section.
