Can “Postal Banking” Bank The Unbanked? (#GotBitcoin?)
Ex-Wall Street Lawyer Is Behind Plan to Have Post Office Compete With Banks. Can “Postal Banking” Bank The Unbanked? (#GotBitcoin?)
Mehrsa Baradaran says financial crisis taught her that banking and government are inextricably linked.
As a young Wall Street lawyer, Mehrsa Baradaran helped large banks turn to the government to survive the financial crisis. A decade later, she is behind a proposal to bring government-backed competition into their world.
More Democrats are touting a proposal to offer banking services through the post office to people who lack bank accounts or credit cards. Many of them—including U.S. Sens. Kirsten Gillibrand of New York and Elizabeth Warren of Massachusetts and U.S. Rep. Alexandria Ocasio-Cortez of New York—have consulted with Ms. Baradaran, a law professor who is about to join the University of California-Irvine.
Ms. Baradaran first began writing about postal banking six years ago, calling it a “public option” for banking, akin to what many argue is needed in health care. She contends that private banks have failed to address the needs of millions of households and that a government-backed option can close the gap.
Her interest had its origins in her work at Davis Polk & Wardwell LLP, which represents such Wall Street clients as Morgan Stanley . Before the crisis, Ms. Baradaran did research on bank charters that firms were considering using that would limit the government’s involvement in their business.
During the financial crisis, banks including Morgan Stanley and Goldman Sachs Group Inc. got the government’s protection by making emergency conversions into fully fledged deposit-taking banks, a shift that helped end a period in which markets were questioning their survival.
What she took away from the experience, she says, was that banks and the government are inextricably linked, in forms ranging from taxpayer support to charter laws protecting banks from competition. “When you see behind the curtain, you see that it’s not based on market rules,” she said. “These are not private institutions. That is what stuck with me.”
Though banking mostly escaped the political spotlight in the 2016 presidential election, it is emerging as a hot topic once again. President Trump has pushed to loosen some regulations on banks, prompting progressive Democrats to revive questions about whether banks are doing enough for everyday consumers, especially as the economy shows signs of slowing.
Ms. Baradaran, 41 years old, left Iran with her family when she was a child after her mother was jailed for opposing the religious regime. Her father, a surgeon, won his wife’s freedom in part by operating on a high-ranking cleric. Soon after, Ms. Baradaran’s parents gave her and her two sisters three days to pack up and move.
She spent the next few years moving around the U.S., including California, Nevada and New York. She spent hours watching “Saved by the Bell,” a popular teen TV program, trying to learn how to fit into her new country. Having joined the Church of Jesus Christ of Latter-day Saints, she got her bachelor’s degree at Brigham Young University. She then went to law school at New York University on a scholarship, and started working at Davis Polk after graduating.
Ms. Baradaran quit the firm when she had her second child. During the baby’s naps and at night, with papers spread over the kitchen table, she wrote a research paper based on her work on bank charters. That led to a second career in academia.
In 2013, she published a paper on the history of postal banking, which existed in the U.S. from the early 20th century up until the 1960s. She proposed bringing it back as a solution to the problem of people who couldn’t afford checking accounts or qualify for credit cards, but needed better ways to store and borrow money than mattresses and payday lenders.
Her work coincided with a report by the inspector general of the U.S. Postal Service suggesting banking as a way to generate more revenue. The inspector general met with Ms. Baradaran, and the postal-workers unions sought her counsel.
“She’s become a powerful voice,” said Mark Dimondstein, president of the American Postal Workers Union. “She’s done the studies underscoring the social problem [of underbanking]. Mehrsa’s work really helped expand the debate.”
Banking industry groups oppose postal banking, arguing it is unnecessary. Proposals for postal banking “raise a number of serious regulatory and consumer protection questions,” the American Bankers Association said in a letter to lawmakers last year.
Even among advocates, there is a debate about how far postal banking should go. Some groups, including the postal-workers unions, argue that the effort should start with things like money orders, ATMs and prepaid debit cards under existing statutes as a pilot program. Other proposals, like Sen. Gillibrand’s, go further, such as getting approval to offer small-dollar loans.
“Mehrsa Baradaran is a bold thinker with important ideas for addressing economic inequality and the racial wealth gap, including postal banking,” said Ms. Gillibrand.
Ms. Baradaran says postal banking and other proposals, such as giving people help with down payments or selective forgiveness of student loans, can begin to address practices that she says have left many Americans with a dearth of financial choices.
“We let banks choose customers, and because of competition they had to drop poor customers and poor neighborhoods,” she says. “Banks are subsidized and supported on so many levels. If banking is a public good, let’s just treat it like that.”