Sunday, February 8, 2009

A Postal Savings Bank Solution?

Michael Perelman has suggested that banks may serve a public utility function and should be nationalized. I assume he means the functions of holding people's money as deposits and using it for some sort of basic investing, without getting into fees for packaging mortgages or other more exotic financial activities. I suggested in a comment on his post that a model of this might be the old postal savings banks of much of Europe and Japan, the latter being the largest in the world. I do think something along their lines, however owned, might offer an alternative, simple banks that do simple things.

As it is the current trend is for those old banks to be privatized in some form. This happened finally in Japan in October, 2007, to the Japan Post, which does more than serve as a bank. In today's NY Times is a story that there is a move by Post A.G., Deutsche Bank, and Swiss Reinsurance to take over the still nationally owned Post Bank A.G of Germany, their postal savings bank. See http://query.nytimes.com/gst/fullpage.html?res=9E02E7D91439F930A35753C1A063958260.

4 comments:

evan said...

Maybe this is a tad monetarist, since I am still working my way through many basic economic concepts, but why even invest the money? Wouldn't it be better just to retire the money (since you're saving with the government) and then reissue it later (plus the official inflation markup for the time it was 'held') when the customer withdraws the money?

Michael Perelman said...

Barkley, you are correct about the privatization. What is wierd is that the banks make their real money off fees. What do you expect a privatized postal bank to do? Pile on the late fees? Use the money to speculate in weird ventures.

What purpose would the privatization serve?

Anonymous said...

Why not just use credit unions rather than the post office ?

rosserjb@jmu.edu said...

evan,

"Retire the money"? No, I don't think that will work. What these big, nationally owned postal savings banks have done has been generally to make very conservative "investments," like holding government bonds, or very limited sorts of loans and investments. They don't do much, but they are not allowed to do much, but that is why they are so safe. We are talking boring public utilities here.

michael p.,

I agree that one of the problems with the US banking sector has been this shift to making money off fees packaging dodgy assets and reselling them. As you have noted, a lot of the traditional business has gone elsewhere, e.g. major corporations raising their own money in other ways, not borrowing from traditional banks. So, this is the argument for boring utility type banks that are heavily restricted in what they can do, whether or not they are publicly or privately owned.

The matter of the privatizations in Japan and Germany (and some other countries) has been in effect that these entities were accused of tying up too much savings in these boring entities that did not do much. Also, in the case of Japan, where Japan Post was/is this really humongous entity that did many things, there was a political corruption problem, with the entity doling out money to favored businesses in districts of favored politicians.

In Germany, it is not the government that is pushing this, and the government can apparently stop this, if they so choose. It looks more to me like these private entities want to get their hands on these very safe assets.

Anonymous,

Well, credit unions are fine as far as they go, but they tend to only finance those participating in them, which limits their activities. I am all for credit unions, but I do not see them as solving the problems we face now, and they are quite different from these old, nationalized (or formerly nationalized) postal savings banks and their relatives.