The Freedman’s Bank Forum obscures the true history of the bank


On October 4, the Treasury Department hosted its seventh annual Freedman’s Bank Forum, an event designed to highlight racial and economic inequality in America and outline possible policy solutions. Keynote speakers included Vice President Harris and Treasury Secretary Janet L. Yellen. Named for the Freedman’s Savings and Trust Co. – also known as Freedman’s Bank – founded in 1865 for black Americans recently freed from slavery, forum speakers discussed well-meaning political goals.

Specifically, Harris celebrated the Economic Opportunity Coalition (EOC), a partnership between the federal government, financial institutions and philanthropic organizations. The EOC was established in July 2022 to channel capital to communities that have historically been underserved by the financial services industry.

The forum invokes the legacy of Freedman’s Bank to highlight historic injustices committed against communities that have been economically exploited and ignored. Additionally, Harris noted that the bank’s mission was guided by the notion that all Americans should “have access to the financial resources they need to succeed, prosper, and determine their own future.”

It is true that Freedman’s Bank represented the economic ambitions of African Americans, but the forum paints an inaccurate picture of its historical legacy. The real story of banking offers a more sober perspective on the fate of African Americans after slavery ended in 1865. Understanding the rise and fall of banking exposes the challenge of public-private partnerships to address inequality racial and economic in America.

Freedman’s Bank was established by white abolitionists, bankers, and philanthropists on March 3, 1865. The bank’s charter specified that it would receive deposits “on behalf of persons hitherto held in slavery in the United States.” Freedman’s Bank was not unlike other thrift banks in America in the 19th century. It was run by a board of directors, men with political and economic influence, chosen to be good stewards of the bank’s finances. She also had a benevolent mission: to encourage habits of hard work and frugality among her depositors.

The administrators of Freedman’s Bank believed that liberated African Americans needed help learning how to earn and save money. “Don’t waste money; save the small sums” was the bank’s maxim as agents scoured the South in the late 1860s encouraging African Americans to open bank accounts. Depositors received semi-annual interest payments to encourage them to save as much money as they could.

Yet African Americans in 19th century America knew how to save money. For example, black soldiers who enlisted in United States Colored Troops regiments had earned pay for their service since being allowed to enlist in July 1862. They fought successfully for receive equal pay to their white counterparts, which was granted in June 1864. This decision increased the need for black soldiers to have access to their own bank.

In response, the Union generals in New Orleans, Beaufort and Norfolk opened military savings banks in 1864 to meet the financial needs of black soldiers. The success of these savings banks laid the foundation for what would become Freedman’s Bank. These banks also proved to bankers in New York and Philadelphia that black Americans were an underserved population.

During the bank’s first five years, black depositors helped make it one of the nation’s most successful financial institutions. Individuals and institutions have opened accounts. Howard University held an account. The university’s founder, Union General OO Howard, was himself a bank director. By 1870, the bank had accepted over $25 million in deposits. In 1872 there were 37 branches in 17 states of the old South, including Washington, D.C.

The bank’s success, however, was short-lived. As administrators approved the addition of branches, the bank’s overall operating expenses increased. In 1868, the trustees, led by bank president John Alvord and banker Henry D. Cooke, supported an effort to pressure members of Congress to approve changing the bank’s charter for him to provide loans.

One of the opponents of the plan was Senator Simon Cameron of Pennsylvania. Cameron did not believe that the bank’s directors had depositors’ best interests in mind, arguing that playing with black depositors’ savings would be risky at best, an indicator of destruction at worst. Despite his objections, Congress approved the proposed amendment in May 1870, which paved the way for a complete reorganization of the bank and its mission.

Almost immediately millions of dollars in unsecured loans went to white businessmen, most of whom had political or social ties to the bank’s directors. The bank’s finance committee chairman, Henry D. Cooke, and actuary, DL Eaton, controlled the lending guidelines. Loan amounts ranged from $500 to $50,000. Cooke’s own brother, famed investment banker Jay Cooke, received a $50,000 loan, secured by flimsy Northern Pacific Railroad bonds.

Yet few loans went to African Americans. The exceptions were a handful of black churches in Washington, DC and Baltimore.

Ultimately, this shift in focus proved disastrous, and borrowers began defaulting on their loans. The bank’s administrators did not keep full accounts of who received loans. Some borrowers offered worthless stocks and bonds as collateral. Others used their relationships with bank administrators to repeatedly change the terms of their loans.

Then one of the bank’s largest debtors, the investment bank of Jay Cooke & Co., declared bankruptcy in September 1873. Jay Cooke & Co. was over-indebted and could not pay its creditors, including Freedman’s Bank. The company’s failure triggered an economic depression known as the Panic of 1873.

Although Congress had ultimate regulatory authority over the bank, no official investigation took place until February 1874. When John J. Knox, comptroller of the currency, ordered bank examiner Charles Meigs to conduct a an official review in January 1874, the activities of the bank were made public. display. Meigs determined that he did not have enough cash to pay the depositors.

The mismanagement of millions of dollars in black American deposits, combined with lax oversight by the federal government, presaged the bank’s demise. But African Americans had begun to sense that all was not well with the bank. Some branches could not meet the needs of depositors who wanted to withdraw money from their accounts.

Even Frederick Douglass, whom the directors had successfully encouraged to assume the role of bank president in March 1874, could not save his tarnished reputation. The trustees had hoped that Douglass could restore depositors’ confidence in the bank. Douglass believed that if he and other liberated people invested in the bank, a representation of black “economics and economics,” that “more consideration and respect would be shown to people of color across the country “. The brilliant orator, however, could not restore African Americans’ faith in an unreliable institution.

Congress ordered the bank to cease operations and close on June 29, 1874. The 61,144 depositors who still held accounts, many of whom poured their savings into this financial institution, collectively lost nearly $3 million ( around $80.65 million today).

Although politicians and the Comptroller of the Currency were able to pressure bank administrators to do good for depositors, they did nothing. Congressional hearings were held between 1874 and 1910, with members of Congress sponsoring bills to reimburse defrauded depositors. But as the federal government shied away from protecting the citizenship rights of African Americans during this period, the fate of Freedman’s Bank depositors deviated from the view of politicians. as well.

The Freedman’s Bank Forum and the Biden-Harris administration’s most recent strategies to address racial and economic inequality unfold the legacy of Freedman’s Bank’s original mission. But tying this important political goal to a bank with a heavy legacy in African American communities obscures how the federal government and the financial services industry have protected their interests over the economic security of former slaves.

The bank was founded to enable African Americans to build a stable economic base as they emerged from slavery. Instead, he shaped the exploitative relationship between the banking industry and minority communities in America – a relationship that continues today.

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