How Japan’s Postal Service Got $3 Trillion

It wasn’t by selling trillions of stamps.

It’s not mail delivery that accounts for the trillions

A parliamentary vote on whether to privatize Japan’s state-owned postal service has been delayed until Monday. Prime Minister Junichiro Koizumi is pushing hard for the reformation of Japan Post, which holds about $2.9 trillion in savings and insurance deposits, making it for all practical purposes the world’s biggest bank. How did Japan’s postal service get so rich?

Postal savings accounts. For 130 years, the postal system has served as a local savings bank for anyone with a cent to spare. (In the early days, you could start an account with a deposit as small as one two-hundredth of a yen.) Postal savings began a few years after the postal service was founded in 1871, and several years before the first private savings bank opened in Tokyo. Today, Japan Post holds about a third of all personal savings in the country. (It does not make big profits from mail delivery.)

The post runs around 25,000 branch offices, where you can send letters, deposit money, make payments, or buy insurance. It also owns far more ATMs than any commercial bank and offers competitive interest rates. But its biggest selling point may be financial security. Customers have repeatedly flocked to the postal system during major banking crises like that of the 1990s.

Japan wasn’t the first country to implement a postal savings system. The United Kingdom started the trend in 1861 and was followed by New Zealand, Canada, and Belgium. Within a few decades, more than a dozen postal banks emerged in large, industrialized nations. The United States created its own in 1910 after years of wrangling and almost 80 failed attempts to pass a law. A banking panic in 1907 finally pushed the proposal onto the Republican platform and through Congress.

Postal savings systems were popular because they offered financial services to everyone, including poor, rural people who weren’t served by private, big-city institutions. When the U.S. system was created, most postal deposits came from immigrants seeking refuge from informal community banks; later, during the Great Depression, postal savings were seen as a safe alternative to accounts at commercial institutions.

But the American version couldn’t compete with the private banks. The post office never offered insurance or direct money transfers, and postal interest rates were held at 2 percent even as competitors offered better deals. Deposits dwindled, and the system was shut down in 1966. Many other systems around the world have been abolished or privatized. The British postal banking system was privatized and sold to the Alliance & Leicester Group 15 years ago.

The Japanese postal service, which has benefited from tax and regulatory advantages, has outgrown and “outlasted” almost every other postal savings systems in the world. The government invests its savings deposits in industry, transportation, the military, and social programs. Critics call this an inefficient—or even corrupt—way to invest the nation’s money. Prime Minister Koizumi supports splitting Japan Post into four private businesses. One would manage savings deposits, another would handle insurance, and the remaining two would provide for mail delivery and postal services.

Next question?