The Washington PostDemocracy Dies in Darkness

The Freedman’s Bank Forum obscures the bank’s real history

The bank’s history highlights flaws in using public-private partnerships to address racial inequality

Vice President Harris at the Freedman’s Bank Forum in Washington on Oct. 4. (Yuri Gripas/Sipa/Bloomberg News)

On Oct. 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. Key speakers included Vice President Harris and Treasury Secretary Janet L. Yellen. Named in honor of the Freedman’s Savings and Trust Co. — also known as the Freedman’s Bank — founded in 1865 for Black Americans recently freed from slavery, speakers at the forum discussed well-intentioned policy goals.

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

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

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

The 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 heretofore held in slavery in the United States.” The Freedman’s Bank was not unlike other savings banks in America during the 19th century. It was guided by a board of trustees, men with political and economic influence, who were chosen to be good stewards of the bank’s finances. It also had a benevolent mission: to encourage habits of hard work and frugality among its depositors.

The Freedman’s Bank administrators believed that freed 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 traveled around the South in the late 1860s encouraging African Americans to open bank accounts. Depositors received biannual 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 the United States Colored Troop regiments had been earning wages for their service since they were allowed to enlist in July 1862. They successfully fought to receive pay equal to their White counterparts, something that was granted in June 1864. This move increased the need for Black soldiers to have access to a bank of their own.

In response, Union Generals in New Orleans, Beaufort and Norfolk opened military savings banks in 1864 to serve Black soldiers’ financial needs. The success of these savings banks set the groundwork for what would become the 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 to make it one of the nation’s most successful financial institutions. Individuals and institutions opened accounts. Howard University held an account. The university’s founder, Union General O.O. Howard, was himself a bank trustee. By 1870, the bank had accepted more than $25 million in deposits. By 1872, there were 37 branches in 17 states throughout the former South, including in Washington, D.C.

The bank’s success was short-lived, however. As trustees approved adding more 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 lobby members of Congress to approve amending the bank’s charter to allow it to offer loans.

One of the plan’s opponents was Sen. Simon Cameron of Pennsylvania. Cameron didn’t believe that the bank’s trustees had the depositors’ best interests in mind, arguing that gambling with the savings of Black depositors would be risky at best, a bellwether 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 businesspeople, most of whom had political or social ties to the bank’s trustees. The bank’s finance committee chair, Henry D. Cooke, and the actuary, D.L. Eaton, controlled the lending guidelines. Loan amounts varied, from $500 to $50,000. Cooke’s own brother, famed investment banker Jay Cooke, received a $50,000 loan, secured by fragile Northern Pacific Railroad bonds.

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

Ultimately, this shift in focus proved disastrous, and borrowers began to default on loan payments. Bank administrators failed to maintain a full accounting of who received loans. Some borrowers offered worthless stocks and bonds as collateral. Others used their relationships with bank trustees to repeatedly amend the terms of their loans.

Then one of the bank’s biggest debtors, the investment bank of Jay Cooke & Co., declared bankruptcy in September 1873. Jay Cooke & Co. was overleveraged and could not pay its creditors, one of which was the Freedman’s Bank. The company’s failure sparked an economic depression known as the Panic of 1873.

Though Congress had ultimate regulatory authority over the bank, no official investigation occurred until February 1874. When John J. Knox, comptroller of the currency, directed bank examiner Charles Meigs to conduct an official examination in January 1874, the bank’s business was put on public display. Meigs determined that it did not hold enough money to pay depositors.

Mismanagement of millions of dollars in Black Americans’ deposits combined with lax oversight by the federal government portended the bank’s demise. But African Americans had begun to sense that all was not right with the bank. Some branches could not meet the needs of depositors who wanted to withdraw money from their accounts.

Not even Frederick Douglass, who the trustees had successfully encouraged to assume the role of the bank’s president in March 1874, could rescue its tarnished reputation. The trustees had hoped that Douglass could restore the depositors’ faith in the bank. Douglass believed that if he and other freed people invested in the bank, a representation of Black peoples’ “thrift and economy,” that “more consideration and respect would be shown to the colored people of the whole country.” The brilliant orator, however, could not restore African Americans’ trust 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 almost $3 million (approximately $80.65 million today).

Although politicians and the comptroller of the currency could have pressured bank administrators to do right by the 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 retreated from protecting African Americans’ citizenship rights during this period, the plight of the Freedman’s Bank depositors drifted from politicians’ view as well.

The Freedman’s Bank Forum, and the Biden-Harris administration’s most recent strategies to combat racial and economic inequality, deploy the legacy of the Freedman’s Bank’s initial mission. But connecting this important policy goal to a bank with a fraught legacy in African American communities obscures the ways in which the federal government and the financial services industry protected their interests over the economic security of the formerly enslaved.

The bank was founded as a vehicle for African Americans to build a stable economic foundation as they emerged out of slavery. Instead, it shaped the exploitative relationship between the banking industry and minority communities in America — one that continues today.