The short history of the Freedman's Bank, officially titled the Freedman's Savings and Trust Company, exemplifies both the promise and the frustrations of African-American economic development immediately after the Civil War. The Freedman's Bank was incorporated by Congress on March 3, 1865, absorbing the military banks that had been established by the Union army during the Civil War in Norfolk, Virginia, Beaufort, South Carolina, and New Orleans to provide depository services for African-American troops. John W. Alvord, superintendent of schools and finances for the federal Freedmen's Bureau, spearheaded the drive to establish the bank and organized the bank's original founders, a group of white businessmen, philanthropists, and humanitarians.
Created as a missionary endeavor to promote thrift among the freed slaves, the Freedman's Bank was to serve as a mutual savings bank for the benefit of the black community. The first interstate bank established after the charter of the Bank of the United States expired in 1836, the Freedman's Savings and Trust Company was a nonprofit organization. Its original charter made no provisions for loans but stated that it would receive deposits from freedmen and -women, invest them in government securities, and return the profits to the depositors in the form of interest.
Although the bank remained legally a private corporation, its concurrent establishment with the Freedmen's Bureau and the appointment of many Freedmen's Bureau officers as bank trustees misled many African Americans into believing that the federal government had assumed responsibility for the institution's financial solvency. Hoping to attract black support for the bank, the trustees used the bank's advertisements to reinforce the public's belief that the bank had government backing. Principal control of the bank was held by the bank's all-white trustees operating at the national headquarters, located first in New York City and then in Washington, D.C. However, the bank gradually hired local black leaders, usually politicians, ministers, and businessmen, as cashiers and as members of the advisory boards in a further attempt to win the trust of the black community.
Encouraged by the bank's government charter and endorsement by the commissioner of the Freedmen's Bureau, many African Americans deposited funds in the bank. Thirty-four branch offices eventually were established, covering every southern state, as well as Washington, D.C., Philadelphia, and New York City. By 1874, 72,000 depositors had entrusted over $3,000,000 to the bank.
Buoyed by its success and seeking to increase interest payments, the bank's predominantly white board of trustees amended the bank's charter in 1870, allowing the trustees to invest half of its deposits allotted for government securities in speculative stocks and bonds and in real estate. Led by the chairman of the finance committee, Henry Cooke, the bank invested heavily in Washington real estate in the 1870s and made several large, unsecured loans. Among these loans was one for $50,000 to Jay Cooke and Company, run by Henry Cooke's brother and business partner, Jay Cooke, to finance the Northern Pacific Railroad. This loan, along with a number of other unsecured investments, left the bank severely overextended and vulnerable when the banking firm of Jay Cooke and Company failed in 1873. The ensuing national financial panic crippled the bank, forcing it to sacrifice its best securities and borrow at ruinous rates in order to remain solvent.
The 1870 amendment to the bank's charter was intended to increase the profits of the depositors and was restricted principally to the Washington office. This policy ensured that the majority of the bank's investments would go to white business ventures. In addition, the collateral requirements for blacks requesting loans were far more stringent than those for whites. As a result, few blacks were able to borrow from the bank, and very little of its money was invested in the black community. Many blacks were vocal about their dissatisfaction with the bank's limited lending policies and its failure to stimulate black business and economic development, but the trustees did not persuade Congress to amend the charter until June 1874. This amendment would have allowed money to be returned to the branch offices for investment, but its late passage prevented its implementation.
With the onset of the Panic of 1873, most of the bank's white trustees resigned, leaving the bank's black trustees, whose numbers had increased steadily since the original appointments made in 1867, in control of the institution. Among the active black trustees in 1874 were Charles B. Purvis, John Mercer Langston, and A. T. Augusta. Along with the other remaining trustees, they made a desperate effort to save the bank and to restore the confidence of depositors by electing Frederick Douglass as president in 1874. Even his efforts to reorganize the bank, however, could not make up for years of mismanagement and the devastating effects of the national economic crisis. Careless lending, the incompetence of certain bank officials, and poor management proved an insurmountable legacy. The failure of the bank struck a deep blow to African-American economic development after the Civil War.
Despite a good deal of support for a bill introduced into Congress that would have reimbursed the depositors in full with federal funds, the legislation never passed. Only by selling off its assets was the bank able to begin reimbursing its depositors in 1875, offering each 20 percent of their total deposits. Many of the small depositors, however, could not be located and thus lost everything. By 1883 less than one-quarter of the depositors had received complete reimbursements, which amounted to only 62 percent of their original deposits. The bank's collapse and the government's unwillingness to shoulder responsibility for the depositors' investments left a legacy of suspicion and distrust among the black community. The bank's monetary losses were especially tragic because they represented one of the first attempts of the newly freed slaves to grasp economic security and equal citizenship.
Fleming, Walter. The Freedman's Savings Bank: A Chapter in the Economic History of the Negro Race. Chapel Hill: University of North Carolina Press, 1927.
Osthaus, Carl. The Freedman's Savings Bank: Philanthropy and Fraud. Urbana: University of Illinois Press, 1976.
louise p. maxwell (1996)