Black History Month
Freedman’s Savings and Trust Company

This month, the editors of the Oxford African American Studies Center will be providing us with insights into black history and culture. To go along with this year’s Black History Month theme “From Slavery to Freedom: Africans in the Americas,” today we will examine the Freedman’s Savings and Trust Company. This article is by Kate Masur. Last week we looked at Frederick Douglass.

The Freedman’s Savings and Trust Company, commonly known as the Freedman’s Bank, was chartered by Congress in March 1865 to be a repository for the personal savings of freed slaves. The bank was founded by a group of white men whose intention, as Frederick Douglass would write in his Life and Times (1881, 1892) was “to instill into the minds of the untutored Africans lessons of sobriety, wisdom, and economy, and to show them how to rise in the world.” Although the bank got off to a promising start, by March 1874, when Douglass became its president, it was on the verge of failure.

At the outset, the managers of the Freedman’s Bank worked hard to open branches in southern cities and a few northern ones with large black populations; during 1865 and 1866 alone the bank opened nineteen branches in twelve states and the District of Columbia. John W. Alvord, first the bank’s secretary and later its president, encouraged bank officials to cultivate trust in local communities by inviting black leaders to serve on bank boards and by publicizing the bank’s work in schools and churches. The Freedman’s Bank identified itself closely with the federal government. Agents of the Freedmen’s Bureau endorsed the bank, and the bank’s advertisements and deposit books bore images of Lincoln and the U.S. flag. The bank’s popularity steadily increased, and during its heyday in the early 1870s it held assets of almost $3.7 million.

After the bank moved its headquarters from New York City to Washington, D.C., in 1867, personnel changes on its board of trustees led to a critical shift in policy. A new cadre of board members with connections in politics and business began making increasingly speculative investments with the bank’s money. In 1870 these men persuaded Congress to modify the bank’s charter, ending the formal requirement that bank money be invested exclusively in government securities. With the restriction lifted, the trustees began using investors’ savings in ever more risky endeavors, such as purchasing stock offered by new companies, investing in real estate of dubious value, and making loans not guaranteed by sufficient collateral.

Meanwhile, the trustees commissioned a magnificent, if ostentatious, new building across from the White House to serve as the bank’s headquarters as well as the Washington, D.C., branch. Douglass, who invested about twelve thousand dollars of his own savings in the bank, recalled looking into the building’s “spacious windows” at “its gentlemanly and elegantly dressed colored clerks.” He wrote in his Life and Times, “It was a sight I had never expected to see. … The whole thing was beautiful.”

As Douglass would discover, however, the bank’s inner workings were not nearly as impressive. Bad investments, as well as cronyism and corruption, left the bank vulnerable when a widespread financial panic hit the nation in the fall of 1873. The bank could not call in its loans, and account holders found it impossible to withdraw their money. The trustees faced not only a loss of credibility but also enormous debts. Attempting to save the bank, the trustees—now led by a number of prominent black men who had not been in charge when the bad loans were made—asked Alvord to resign the presidency and invited Douglass to take his place, hoping that Douglass’s clout among African Americans would help steady the bank’s reputation.

Douglass accepted the position at the end of March 1874, believing he could save the bank. But the institution soon suffered another blow when a Treasury Department report indicated that the bank remained deeply in debt. Realizing that he had not understood the extent of prior mismanagement, Douglass urged Congress to take steps to protect investors from further losses. Congress modified the charter once again, but by late June the trustees agreed that the bank could not be sustained and voted to shutter it.

The failure of the Freedman’s Bank was devastating to the African Americans who had entrusted their savings to it. After investigating the bank’s failure, Congress established a program that made depositors eligible to receive up to 62 percent of what they were owed; many never received even that much, however. For decades depositors and their descendants campaigned to persuade the federal government to assume some responsibility, arguing that investors had been led to believe that their savings were ensured by the government. They were never compensated. As John Mercer Langston, one of the bank’s black trustees, wrote in his 1894 autobiography, “Perhaps the failure of no institution in the country … has ever wrought larger disappointment and more disastrous results to those interested in its creation.”