The Racial Wealth Gap: Freedman's Bank & Trust Bankruptcy
Learn about the racial wealth gap, era-by-era:
Summary
The Freedman's Saving and Trust Company, popularly known as the Freedman's Savings Bank, was a private corporation chartered by the U.S. government to encourage and guide the economic development of the newly emancipated Negro communities in the post-Civil War period.
Although functioning only between 1865 and 1874, the company achieved notable successes as a leading financial institution for negroes. However, the white-run institution was never set up to truly grow the wealth of its Black depositors -- it was established only as a savings bank, meaning it did not lend money. When Henry Cooke took over as the bank’s finance chairman 1867, he began using its funds to finance the railroad industry without the knowledge of the depositors. In 1871, the bank’s managers lobbied Congress to deregulate and turn the institution into an investment bank, but the funds were used recklessly for speculation. All the while, the bank encouraged freedmen to increase their deposits to fuel their investments by promising better returns. A year after the Panic of 1873, which involved the failure of railroad investments, the bank went under, taking with it nearly $3 million in deposits, more than half of accumulated Black wealth. Its failure was devastating to the newly emancipated negro communities.
“Not even ten additional years of slavery could have done so much to throttle the thrift of the freedmen as the mismanagement and bankruptcy of the series of savings banks chartered by the Nation for their special aid.” - W.E.B. Du Bois
Its archives are valuable as a large collection of information regarding the applicants and what was known of them including some physical descriptions of complexion, where they were born and also names of family members in the immediate aftermath of emancipation. The bank maintained 37 offices in 17 states, and deposits peaked at $57 million from 70,000 depositors.
John Mercer Langston, one of the bank’s black trustees, wrote in his 1894 autobiography, “Perhaps the failure of no institution in the country … has ever wrought larger disappointment and more disastrous results to those interested in its creation.”
Timeline of Events Related to the Freedman's Savings Bank Collapse:
1. March 3, 1865: The Freedman's Savings and Trust Company, commonly known as the Freedman's Savings Bank, is established by an act of Congress. It aimed to provide financial services and promote savings among newly emancipated African Americans.
2. 1870s: The bank expands rapidly, opening numerous branch offices across the United States. It becomes a significant institution for African American depositors, handling millions of dollars in deposits.
3. Late 1873: Economic recession hits the United States, leading to financial difficulties for many banks, including the Freedman's Savings Bank. Mismanagement, speculative investments, and embezzlement contribute to the bank's decline.
4. June 29, 1874: The Freedman's Savings Bank officially closes its doors, declaring bankruptcy. Thousands of African American depositors lose their savings, amounting to an estimated $3 million (equivalent to approximately $68 million in 2021).
5. Aftermath and Fallout: The bank's collapse has devastating effects on African American communities. Many depositors, who had entrusted their savings to the bank, are left impoverished and disillusioned. Investigations and legal battles follow, uncovering instances of fraud, mismanagement, and negligence.
6. Legislative Response: In 1874, Congress passes a resolution establishing a commission to investigate the bank's failure and provide recommendations for compensating depositors. However, due to political and financial constraints, only a fraction of the depositors' losses are repaid.
7. Impact on Trust and Savings Institutions: The failure of the Freedman's Savings Bank erodes trust in African American-owned banks and savings institutions, making it more challenging for these institutions to secure deposits and operate successfully.
8. Legacy: The collapse of the Freedman's Savings Bank serves as a cautionary tale and highlights the vulnerability of marginalized communities to financial exploitation. It underscores the importance of financial literacy, regulatory oversight, and equitable access to banking services.
It is important to note that this timeline provides a broad overview of the major events related to the Freedman's Savings Bank collapse.
Articles
22 million reasons black America doesn’t trust banks (Marcus Anthony Hunter)
The Freedman’s Bank Was a First Step for Newly Freed Black Citizens (Julie Huffman)
On Jun 28, 1874: Freedmen’s Bank Fails, Devastating Black Community
Freedmen’s Savings and Trust Company (1865-1874) (Ryan Hurst)
Books
The Color of Money: Black Banks and the Racial Wealth Gap (Mehrsa Baradaran)
Podcasts
Film/Video
History of the Freedman's Bank
VIDEO: The story one of the worst robberies in American history: The Freedman's Bank
Freedman's Bank 150th Anniversary Celebration
Banking Black Part 1-Freedman's Bank: Black Owned History
Additional Resources
United States, Freedman's Bank Records, 1865-1874
African American Freedman's Savings and Trust Company Records
The Freedman's Savings and Trust Company and African American Genealogical Research
Mapping the Freedmen’s Bureau: Freedman’s Bank Branches (map)
Questions for Research and Reflection:
- Do you think racism figured into the mismanagement of funds held by the Freedmen's Savings and Trust? Why? How?
- How does the bankruptcy contribute to Black distrust of the government as well as white people?
- How does the failure of the Freedman's Savings and Trust affect Black economic progress in 1877? How does it affect the acquisition and transfer of generational wealth? Financial literacy?
- Once the bank fails, what do African American's do with their savings?
- What would have happened to your family if it had lost its life savings then?
"It was never the case that a white asset-based middle class simply emerged. Rather, it was government policy, and to some extent literal government giveaways, that provided whites the finance, education, land and infrastructure to accumulate and pass down wealth."