The Freedman's Bank
The Freedman's Bank (by John Kraljevich)
Because numismatic history is so often written by collectors, it tends to focus on objects: paper money, coins, tokens, and other relics of commerce that survive to be cherished and studied.
While coins survive the centuries more or less unchanged, wealth is far less durable. Numismatists collect and study all the symbolic manifestations of wealth, but in doing so they perhaps miss the forest for the trees.
The unique resources of the Newman Numismatic Portal offer abundant opportunity to study those symbols of wealth, from banking history, to paper money, to stock or share certificates, to coins made of gold and silver. Like a gravitational pull that suggests an unseen planet, these numismatic specialties can help us document the ebbs and flows of American wealth.
Of course, it is easier to study the presence of something than its absence. There are no $0 banknotes or certificates issued for 0 shares of stock. Because of this, the various underclasses that have been present throughout American history — and there have been many — often seem invisible to numismatists who focus on coins and currency. Medals and tokens, and various instruments related to debt, shed precious light on those corners other specialties miss.
The NNP is rich in banking history resources, many of which are hidden in plain sight: government publications that are dry reading to even the most studious among us, long runs of periodicals like The Bankers’ Magazine, whose title leaves no mystery as to what can be found within it. Aside from particularly geeky paper money enthusiasts, numismatists generally have little reason to delve in.
That is, unless they’re looking for the story of the Freedman’s Bank, whose material artifacts are as scarce as the wealth of the populace the institution first set out to help.
The Freedman’s Bank was incorporated as The Freedman’s Savings and Trust Company by Act of Congress on March 3, 1865. President Lincoln signed it on the final day of his first term, along with a stack of other bills passed by the previous lame-duck session of Congress. The next day, March 4, with Grant and Lee leering at each other outside the Confederate capitol of Richmond, Lincoln reminded the crowd gathered for his second inauguration that slavery “was somehow the cause of the war.” The conciliatory tone of Lincoln’s speech masked his bitterness over the struggle and the horrible cost it had exacted.
Knowing that the days of the conflict were numbered, preparations had begun for the reconstruction that would follow. The Freedman’s Bank was the brainchild of private philanthropists from the Northern abolitionist community who sought to give those formerly enslaved, soldiers in particular, a safe place to deposit their wages and develop savings habits. The idea was hatched that U.S. Government backing, even a bank charter, would help the institution serve its functions better than a solely private bank ever could. Charles Sumner, the abolitionist leader from Massachusetts, introduced the bill on March 2, 1865. It passed as an afterthought, and Lincoln signed it into law the next day.
The act of incorporation dictated that the Freedman’s Savings and Trust Company would receive deposits from those “hitherto held in slavery in the United States, or their descendants.” The bank would invest those deposits in low risk instruments, namely stocks, bonds, and Treasury notes, retaining one-third of the deposits as available cash. Minors and women would be freely able to use the banks services “without reference to guardians, parents, or husbands,” and the trustees of the institution would work for no pay. The Freedman’s Bank would pay interest not exceeding 7%, but its primary goal was to be a piggy bank: a safe place for the newly emancipated to place their funds without risk.
The Rules of Deposit were published in the Bankers' Magazine in October 1867. The short notice celebrated “the whole Institution,” which “received the commendation and countenance of the sainted Abraham Lincoln. One of the last official acts of his valued life was the signing of the bill which gave legal existence to this bank.” Deposits of one dollar or greater were accepted, and depositors with more than five dollars in their account could receive interest, payable on whole dollars. “Men and women who have not enough money to buy a United States $50 bond,” the bank suggested, “should not let their small earnings remain idle. As fast as you get your earnings, put away the dollar or two you may have above your immediate needs and they will soon swell into a large and handsome sum.”
By August 1869, the bank held more than a million dollars in deposits, representing the entire net worth of tens of thousands of men and women who had been enslaved just a half-decade earlier. Slowly but surely, the wages they worked so hard to earn were gathering interest, and the bank served to protect depositors from swindlers while helping to teach the basics of household economy. The reach of the Freedman’s Bank was nearly nationwide, with 24 branches established from St. Louis to Beaufort, South Carolina, from Savannah to New York. This expansive network was literally accidental: the authorizing legislation intended to limit the bank’s business to the District of Columbia, the only area where Congress had the authority to charter a bank, but as the June 1875 Bankers' Magazine noted, “it was hurried through both Houses [and] by some mischance the important amendment was omitted.”
While the Freedman’s Bank was remarkably successful in its first few years, living up to the best intentions of its founders, this Washington DC institution succumbed to the worst of Washington’s impulses: ruining a good thing by special interests seeking advantage. The Bankers' Magazine of July 1875 tells the story:
But at last, certain speculative persons cast greedy eyes on the deposits of the bank. In April 1870, an amendment to the charter was proposed in the House by Mr. Cook of Illinois. The proposed change seemed simple. It merely provided that the trustees might invest in mortgage securities …
I bet you see where this is going.
The argument was made that the depositors saw so little interest on their hard-earned money from the extremely low risk investments held by the bank that it was worth trying to make their money work harder for them. The counterargument was made by Senator Angus Cameron of Wisconsin that “the change would bring about disaster.” The amendment passed against all objections.
Cameron was right. According to the account in Bankers’ Magazine, “three years of the new regime was enough to squander away the funds of this prosperous institution.” Washington insiders and elected officials invested the only money the formerly enslaved had ever held in dodgy real estate transactions, unsecured mortgages, and personal loans. “Irregular transactions came to light, and the concern was declared insolvent” in 1874.
At this late hour, once all hope of the institution ever turning itself around had passed, Frederick Douglass was named president of the Freedman's Bank. Douglass donated thousands of dollars from his own pocket in an effort to keep depositors from losing everything they had and lobbied Congress for help. None was forthcoming, and on the day the bank closed its doors — June 29, 1874, less than a decade after they had opened — nearly $3 million was owed to depositors. Nearly 72,000 depositors had lost their money. The average value of their nest eggs was about $40. About 20% of depositors had saved up less than $5, now entirely out of reach.
The bank’s investments didn’t only fail because they were bad investments. After the Panic of 1873 and its attendant lack of liquidity, all real estate lost value, and even the most prime parcels became hard to sell. The assets of the Freedman's Bank were mostly located in the South, where little capital to purchase the properties would be forthcoming for years. The bank’s liquidation was slow, painful, and yielded just pennies on the dollar.
By the summer of 1875, the commissioners had recovered just $300,000, about half what they needed to pay a 20% dividend to depositors. It took until November 1875 for the first repayment to depositors to be made. The number of open accounts at that point was over 61,000. About 5000 of them were owed less than $1. On November 1, 1875, the United States Treasury began issuing checks to depositors of 20% of their accounts’ value. This process produced the only numismatic collectible of the Freedman’s Bank. Engraved and printed by the Bureau of Engraving and Printing on pale green paper, with the left margin dominated by a bold portrait of Lincoln in an octagonal frame, the checks were emblazoned with the title Office of the Commissioners of the Freeman’s Savings and Trust Company, Washington D.C.
The Freedman’s Bank checks are occasionally seen in the marketplace, but are rare today. Those that survived are the saddest documents of this whole ordeal: the checks that were never cashed, almost always because their amount made it barely worthwhile. An example in the Library of Congress from the second dividend, paid in March 1878, is for just 16 cents. Others seen are for similarly trivial amounts.
The March 1878 second dividend was for 10%. Another 15% dividend was issued in 1881, at which time depositors were told if they had not yet filed a claim they would be forever barred from doing so. The third dividend averaged 99 cents, paid to nearly 38,000 depositors. A fourth and final dividend, paid in 1883 for an additional 15%, brought the repayment back to 60% of the original deposit.
Those formerly enslaved Americans who had entrusted the government with their first wages, their first savings, and the first efforts of growing wealth that had been long denied them lost 40% in the process. And nearly a decade had passed while those who had survived that interval waited to recover the remaining 60%.
The Bankers’ Magazine didn’t mention the Freedman’s Bank again until 1901.The post-mortem offered at that point cut to the bone:
If Congress had been actuated by a proper regard for the interests of the freed men, this irregularity should at once have attracted attention to the potential danger from the existing management. But this neglect, and the enactment lowering the character of the investments, indicates how liable Congress is to be swayed by the influences of the hour, to the detriment of its own cherished design.
It is evident that if Congress had taken the same pains with the management of the bank that it did with its liquidation after irreparable mischief had been done, the institution might to-day have been one of the most flourishing and powerful of its kind in the United States. It would have proved a strong financial protection to the colored people of the South. In less than eight years from its inception it accumulated deposits, from probably the very poorest class of people in the country, amounting to nearly three millions of dollars. Over sixty thousand ex-slaves had started on the road to thrift and competence. With a competent management held to their duty by appropriate rules and precautions, the institution would have been in a situation to have aided the colored people of the South in securing the financial assistance they might require in their local enterprises. The greater prosperity of the colored people would have advanced the prospects of the whole southern population, white as well as black.
“The main fault of the failure,” Bankers’ Magazine reported, “rests with Congressional neglect in incorporating the company without the necessary safeguards.” Today, the entire episode is mostly forgotten by numismatists, save for the odd sighting of a Freedman’s Savings and Trust Company check for some infinitesimal amount, evidence that “many of the claims were so small that the dividends were never claimed.” The entire history of the Freedman’s Bank has been mentioned in the century-long history of The Numismatist exactly once: in April 2017, when the U.S. Mint issued the Frederick Douglass National Historic Site quarter dollar. The article described Douglass’ tenure as “ill-fated.” The same could be said for the entire history of the Freedman’s Savings and Trust Company.
Link to previous John Kraljevich blog entry on NNP: https://nnp.wustl.edu/blog-post/515408