The Freedman's Saving and Trust Company, known as the Freedman's Savings Bank, was a private savings bank chartered by the U.S. Congress on March 3, 1865, to collect deposits from the newly emancipated communities. The bank opened 37 branches across 17 states and Washington, D.C. within 7 years and collected funds from over 67,000 depositors.[1] At the height of its success, the Freedman's Savings Bank held assets worth more than $3.7 million in 1872 dollars, which translates to approximately $80 million in 2021.
However, the rapid development of the bank was largely driven by false claims and was coupled with mismanagement and fraud.[2] The bank failed in 1874, weighed down by speculative loans issued by the bank's white officials throughout its existence.[3] Historians believe that the bank's failure not only destroyed the savings of many African Americans, but also their trust in financial institutions.[4][5][6]
The site where the bank's headquarters once stood was later occupied by the Treasury Annex. The Annex was renamed the Freedman's Bank Building in 2016.
Establishment
At the end of the American Civil War, the poor economic conditions of the formerly enslaved freedmen were aggravated by the economic devastation of the Southern states. The newly freed Blacks had few economic resources or capital and even less exposure to private enterprise. Many soon turned to sharecropping and forced labor in the South. To help alleviate their socio-economic conditions, the Republican-controlled U. S. Congress established the Freedmen's Bureau, passing an act of incorporation and a charter for the Freedman's Saving and Trust Company, which was signed into law by President Abraham Lincoln on March 3, 1865 (13 Stat. 510).[7][8]
Senator Blanche Bruce of the Select Committee on the Freedman's Savings and Trust Company, himself a former slave, wrote
"As its name imports, the institution was designed to perform for a particular class of our people the simple but important functions of a savings bank; its declared purpose being 'to receive on deposit such sums of money as may from time to time be offered therefor, by or on behalf of persons heretofore held in slavery in the United States or their descendants, and investing the same in the stocks, bonds, treasury notes, or other securities of the United States.'
Fraud and other financial misconduct
From the Freedman's Savings Bank's creation, there were several deficiencies in its governance and management that contributed to its ultimate collapse.
The bank trustees had little incentive to govern effectively. All fifty original trustees were White and were not required to give "any security for the faithful discharge of their trust."[4] Many trustees had little to no involvement with the bank, some even denying they had agreed to join the board.
The bank's founding charter lacked any penal clauses to hold trustees personally liable for the bank's solvency.[4] It prohibited lending until the amendment of 1870.[4] While two-thirds of the bank's deposits were required to be invested in U.S. government securities, the use of the remaining funds was unrestricted; Osthaus wrote that this provision was "somewhat disquieting to those familiar with the history of savings banks, for they knew that available funds frequently became unavailable".[4]
There is also evidence that the bank's management misled depositors about a supposed government guarantee, interest payments, and the use of the deposit funds.
Failure
When the Panic of 1873 struck, several railroad projects failed, which undermined the finances of the Freedman's Savings Bank. This led to a series of runs in different branches.[4][10]
Following the panic, in an attempt to restore confidence in the bank among the African-American community, there was a significant change in the leadership of the bank. Trustees of the bank deposed the founder and president John W. Alvord in March 1874, and elected in favor of Frederick Douglass as president.[4] Of this change in leadership, Walter L. Fleming remarked: "Some, looking for a scapegoat, were anxious that colored officials be in charge when the bank failed as they were sure it would; others thought that a Negro administration would restore the confidence of the depositors and enable the institution to survive until better times."[11]
The bank closed on July 2, 1874, despite the reform attempt. Some scholars claim that the failure of the Freedman's Bank and the loss of their savings led to a distrust of all banking institutions for several generations among the Black community.
Depositors’ losses
Just after the collapse, in July 1874, three commissioners were appointed to wind down the bank. They found that the value of assets was lower than registered in the bank books; liquid assets, cash, and government securities amounted to less than 2% of the bank's total liabilities.[14]
Many depositors never received their deposits back. To repay them, the commissioners decided to rely on personal passbooks only, instead of the central bank books. Depositors needed to mail their passbooks to Washington to submit their claim. Many depositors, who had lost faith in the bank, were reluctant to do so. Others faced legal challenges in proving their identities or their relationship to depositors who had died. Some who did receive checks did not cash them, not understanding their use.[4]
The repayments came late, leaving cash-poor depositors stranded. Not until November 1875 did the bank start payouts. The commissioners, even in the face of many special requests from depositors for small immediate payments, instructed cashiers to withhold all money, even for cases of extreme necessity. In response, some depositors who had lost faith in the bank and were in dire need, sought to sell their claims against the bank at a discount. Some even sold their passbooks to shopkeepers in exchange for groceries and other supplies.[4]
Archives
The surviving documentation and papers of the bank archives illuminate the names, whereabouts and other relevant information about the veterans of the 7th Regiment United States Colored Troops and their transactions with the bank. The data is considered historically important in the study of African American history.[15] The bank's records of 480,000 names, estimated to be the largest single repository of lineage-linked African American records, has been indexed by the Church of Jesus Christ of Latter-day Saints. The searchable database is available to amateur and professional genealogists as well as researchers.[16]
See also
- Freedman's Bank Building
- Freedmen's Bureau
Further reading
References
- United States, Freedman's Bank Records, 1865-1874 — FamilySearch.org www.familysearch.org, retrieved 2021-04-08^
- Finance, Advertising and Fraud: The Rise and Fall of the Freedman's Savings Bank^
- Bruce. S. Rept. 46-440 - In the Senate of the United States. April 2, 1880. Ordered to be printed. Mr. Bruce, from the Select Committee on the Freedman's Savings and Trust Company, submitted the following report. (To accompany Bills S. 711 and S. 1581.) ..