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  • Terry Banks

Banking While Black from 1865-1874

It’s no secret that Black people have a general distrust of US institutions. Banking is not an exception. One of the reasons is the rise and collapse of the Freedman’s Bank in 1874. Black people who have never heard of the Freedman’s Bank have inherited a legacy of distrust instead of generational wealth.


Slavery was abolished in the United States With the passage of the 13th Amendment and the end of the Civil War in 1865. 4 million men, women, and children were freed with most having no home, no money, and no work.


Because of the brutal practice of selling family members away, their relatives were scattered all over the country and nearly impossible to find. The Bureau of Refugees, Freedmen, and Abandoned Lands, commonly known as “the Freedmen’s Bureau,” was created by U.S. government. The Freedmen’s Bureau provided food, housing, and medical aid to tens of thousands of freed slaves.


During the Civil War, there were multiple attempts at establishing private banks in several states to help Black soldiers have a safe place to save their money. On January 27, 1865, John W. Alvord, a Congregational minister and abolitionist, proposed a plan to more than twenty philanthropists and leading members of the business community. This group decided that a bank charter should be secured from the federal government. A bill to incorporate the Freedman's Savings and Trust Company was brought before Congress on February 13, 1865. On March 3, 1865, Abraham Lincoln signed into law the Freedman’s Bank Act which authorized the organization of a national bank for recently emancipated Black Americans.


The objective and purpose of the Freedman’s Bank Act was to accept and safeguard deposits as a simple savings institution for former slaves and their descendants. Part of keeping it simple was that no loans would be made. The deposits were to be invested in stocks, bonds, Treasury notes, or other securities of the United States. A board of fifty trustees was authorized to manage the bank, and the company's books "were to open for inspection and examination to such persons as Congress would appoint."


In 1870 an amendment was made to its charter that changed its loan and investment policy. Loans and mortgages were now being authorized and they were usually given only to whites. Trustees made risky loans to friends, some without collateral. Some trustees ran other banks and offloaded bad loans to the Freedman’s Bank.


Using deposits for speculation in the railroads and property losses from the Great Chicago Fire in 1871 and the Great Boston Fire in 1872 in addition to mismanagement, abuse and fraud made the bank vulnerable. The Panic of 1873 then put further strain on bank reserves. For context, The Panic of 1873 was known as the Great Depression in the US before it was renamed after the devastation of the 1929 Great Depression.


Rumors and reports of corrupt practices by the white managers began to circulate. Sensing that the Freedman’s bank was in trouble depositors began to pull their money out of the bank. In an attempt to prevent further withdrawals, the management team was replaced with leaders from the black community. In March of 1874, Frederick Douglas was appointed president. To prove his faith in the bank, Douglas invested 10k of his own money. After a few months of leading the bank, Douglas soon found that he was "married to a corpse" and the bank was closed.


$83,317,376.56 is the amount in 2022 dollars ($3,299,201 in1874) of the total deposits over 10 years. These deposits were made in relatively minuscule amounts by people that went from making no money for their labors to people being poorly paid and yet they saved. Freedman's Bank opened 37 branches in 17 states and DC between 1865 and 1871. In less than a decade around 70,000 accounts had been opened and closed.


The deposits were not actually protected by the federal government as depositors were led to believe. The Black community was devastated financially and their hopes and dreams of what their money could have done for them were shuttered along with the bank. Feelings of betrayal, abandonment and deep distrust of the American banking system still remain. Half of the depositors recovered nothing while others received about ⅗ of the value of their accounts. ⅗ recovered for someone that up until a short time previously was considered ⅗ of a man is not lost on me.


According to Frederick Douglas, the Freedman’s Bank became “the Black man’s cow but the white man’s milk.” Much, much more than 83 million was lost by the Black community. The inability to participate in wealth-building activities then as well as many lost opportunities over generations. Nationwide at least 100 banks failed in the Panic of 1873. The Freedman’s bank did not have to be one of them.


In 1899, the DC headquarters of the Freedman’s Bank was demolished. About 20 years later, the US Treasury Department built its new Annex building on the same spot. For me, this is yet another example of white wealth being built on Black demise. On January 7, 2016, the Treasury Department renamed the Treasury Annex the Freedman’s Bank Building to commemorate the 150th anniversary of the Freedman’s Bank.


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