Freedman's Savings Bank facts for kids
The Freedman's Savings Bank was a special bank created by the U.S. Congress on March 3, 1865. Its main goal was to help newly freed enslaved people save their money after the American Civil War.
This bank grew very quickly. In just seven years, it opened 37 branches in 17 states and Washington, D.C. More than 67,000 people put their money into the bank. At its best, the bank held over $3.7 million, which would be about $80 million today.
However, the bank faced big problems. It grew fast because of false promises and poor management. There was also a lot of fraud. The bank failed in 1874. This happened because bank officials, who were white, made risky loans. Many historians believe this failure not only made people lose their savings but also their trust in banks.
The old records from the Freedman's Savings Bank are very important. They give unique information about many of its customers. These records show details like their identity, age, job, birthplace, and family members. The building where the bank's main office once stood is now called the Freedman's Bank Building.
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Why the Bank Was Started
After the Civil War, many formerly enslaved people, called freedmen, faced tough times. They had very little money or resources. The Southern states were also in bad economic shape. Many freed people ended up working as sharecroppers or in forced labor.
To help them, the Republican-controlled U.S. Congress created the Freedmen's Bureau. They also passed a law to start the Freedman's Savings Bank. President Abraham Lincoln signed this law on March 3, 1865.
The idea for the bank came from John W. Alvord. He was inspired by military savings banks. These banks were set up during the war for Black soldiers to save their pay. For example, General Rufus Saxton started one in South Carolina in 1864. Other generals like General Benjamin Butler and General Nathaniel Banks also created similar banks.
Many former slaves joined the Union Army and earned some money. The Freedman's Bank was the first bank to welcome them. Most accounts held small amounts, usually between $5 and $50.
From 1865 to 1868, the bank grew mostly from money saved by Black soldiers. In its first year, two branches were created by taking over existing military banks. Many other branches were placed where there were lots of Black soldiers. Bank officials worked hard to make the bank seem trustworthy. They also tried to get soldiers to deposit their wages. Some bank cashiers even worked as military pay officers.
Problems and Mismanagement
From the very beginning, the Freedman's Savings Bank had serious problems. These issues in how it was run led to its eventual collapse.
The people in charge, called trustees, didn't have much reason to do a good job. All fifty original trustees were white. They didn't have to promise to be responsible for the bank's money. Many trustees had little to do with the bank. Some even said they never agreed to be on the board.
The bank's original rules did not punish trustees for the bank's financial health. The rules were also unclear about how deposits could be used. The only clear rule was that the bank could not lend money until 1870. Two-thirds of the bank's money had to be put into U.S. government investments. But the rest of the money could be used however they wanted.
There is also proof that the bank's leaders misled customers. They suggested the government guaranteed the money, which was not true. They also made false promises about interest payments and how the money would be used.
The bank advertised widely to get more deposits. They handed out pamphlets in churches and schools. They also put ads in newspapers. They held public meetings in churches and at bank branches. Their ads often made it seem like the U.S. government backed the bank. But it was a private company with no government guarantee. For example, one newspaper said there was "no possibility of loss" because the government was "responsible for every dollar." The bank also promised 6% interest, but often paid less.
The bank's leaders also got involved with an investment bank called Jay Cooke and Company. This company invested a lot in railroads. Henry D. Cooke, who was Jay Cooke's brother, was in charge of the bank's finance committee. He put a lot of the Freedman's Bank's cash into Jay Cooke's own bank. This amount reached $500,000 at one point. The Cooke brothers paid only 5% interest on this money. Meanwhile, the Freedman's Bank was promising 6% to its own customers. The Freedman's Bank also broke its own rules. It invested in railroad bonds as early as 1869.
The bank made more and more risky investments. This caused it to lose a lot of money. Building a new headquarters in Washington, D.C., also added to its costs. In May 1870, Congress allowed the bank to make loans using real estate as collateral. These loans could be up to half of the bank's deposits. The loans had to be secured by mortgages worth double the loan amount.
Another questionable investment was $50,000 in loans to the Seneca Sandstone Company. These loans were backed by "worthless bonds." Henry D. Cooke approved this loan, even though he was on the quarry company's board. Bank officials also approved personal loans to themselves and their friends. For example, $224,000 was loaned to Robert I. Fleming. He was the contractor building the bank's new headquarters. Even when the bank was about to fail, a secret loan of $33,366 was made to Juan Boyle in June 1874.
Bank Failure
The Panic of 1873 was a big financial crisis. Many railroad projects failed during this time. This greatly hurt the finances of the Freedman's Savings Bank. People started rushing to different branches to take out their money.
After the panic, the bank tried to regain trust from the African-American community. They made a big change in leadership. In March 1874, the bank's founder, John W. Alvord, was removed. Frederick Douglass, a famous African-American leader, was elected as the new president. Some people hoped a Black leader would restore confidence. Others thought it was a way to blame Black officials when the bank failed.
Despite these efforts, the bank closed on July 2, 1874. Some experts believe that the bank's failure caused Black communities to distrust all banks for many years.
Depositors' Losses
After the bank closed in July 1874, three people were chosen to close it down. They found that the bank had much less money than its records showed. The cash and government investments were less than 2% of what the bank owed.
Many customers never got their money back. To pay people, the officials decided to only use personal passbooks, not the bank's main records. Customers had to mail their passbooks to Washington to make a claim. Many people had lost faith and didn't want to do this. Others had trouble proving who they were or their connection to family members who had died. Some who received checks didn't cash them because they didn't understand what they were.
The payments came very late. This left many people who needed cash without it. The bank didn't start paying out until November 1875. Even when people desperately needed money, the officials told cashiers to hold all funds. Because of this, some customers who had lost hope sold their claims against the bank for less money. Some even sold their passbooks to shopkeepers for groceries.
Often, people had to accept much less than they were owed. For example, in 1881, a customer with $352 in the bank only received $28.16. When the first payments were announced, only 49% of eligible customers asked for money. Bank records showed that wealthier customers made most of these claims. People with small accounts received little to no money. The delayed payments and the small number of people who received them mean that, on average, customers got much less than 62% of their deposits back.
Archives
The surviving documents from the bank are very important. They show the names and locations of veterans from the 7th Regiment United States Colored Troops. They also show their bank transactions. This information is a key part of African American history.
The bank's records contain about 480,000 names. This is believed to be the largest collection of family-linked African American records. The Church of Jesus Christ of Latter-day Saints has organized this information. This searchable database is available for anyone interested in family history or research.
