Japanese postal savings
All of Japan's private banking institutions pale beside the Postal Savings System. Japan's Postal Savings System is the world's largest depository institution with assets of about ¥170 trillion - about eight times as large as Citicorp.
How did Postal Savings grow so large?
The convenience of 19,000 branches helped, but higher real returns was the key. Until 1985 most interest earned was tax free, and even the pretax interest rate was higher than that obtainable from regulated bank deposits.
In addition Postal deposits have an implicit guarantee from the government, and this is obtained without having to pay deposit insurance.
This has helped Postal savings recently. Even though bank deposits are insured to about $100,000, consumers are wary of banks because of their bad loans. Over the last three years, banks have lost ¥40 trillion in deposits to Postal Savings. Also, Postal Savings is not a corporation so it doesn't pay dividends nor taxes.
With all this going for it, it's not a mystery to see why Postal Savings became so big. But with these advantages, limitations were placed on it.
Postal Savings could cater only to individuals. Corporate deposits were not allowed because the whole purpose of Postal Savings was to build up individual savings.
Additionally individuals were limited to one small account of about $60,000. Many Japanese ignored this and set up many accounts under pseudonyms.
Even with these limitations, as Japan's banking industry becomes more deregulated, there are increasing calls to privatize Postal Savings.
Finally, what does the Postal System do with all of its deposits?
Most of the money is placed in the government's Trust Fund Bureau.
The Trust Fund Bureau is like the government's bank. It invests in government bonds, or it recycles funds into the economy through government institutions like The Japan Development Bank, The Import-Export Bank of Japan, The Housing Loan Corporation, The People's Finance Corporation or The Small Business Finance Corporation.