white trustees, led by famed( and infamous) banker Henry D. Cooke, lobbied Congress, which allowed them to alter the bank’ s fundamental mission.
By mid-1870, the bank ceased operating as a savings bank or, as the bank’ s name suggested, a savings and trust company. The trustees, with congressional approval, began to operate the Freedman’ s Bank as a commercial bank. Instead of merely accepting freed people’ s deposits, the trustees began making loans, using the millions of dollars of Black Americans’ money to invest in speculative ventures. Most of the loans went to white businessmen, members of Congress and investors in and around the bank’ s central office in Washington, DC. Some of the trustees even stole depositors’ money to fund their own business ventures. Initially, when the bank operated as a savings bank, the trustees’ and administrators’ intentions may have benefited the depositors. But as African Americans’ money flowed into their accounts, the bank administrators’ intentions changed. Corruption seeped in. This corruption jeopardized the bank’ s fundamental mission, to serve African Americans.
The bank could sustain only so much instability. So when a financial panic in the fall of 1873 toppled some of the nation’ s most prominent financial institutions, this event proved to be too much risk for the Freedman’ s Bank to withstand. The trustees, therefore, made one final decision to salvage the bank’ s reputation among Black depositors. In March 1874, the trustees convinced Frederick Douglass to help steer the bank toward prosperity. But not even Douglass could rescue the institution, or the depositors’ money. After nine years of operation, the bank’ s exponential growth came to an abrupt stop. On July 2, 1874, the bank officially closed its doors. The remaining depositors, all 61,144 of them, lost access to a collective $ 2,939,925.22($ 77.9 million today). Though depositors recovered $ 1,731,845.01($ 45.9 million today), 59 % of the total deposits at the bank’ s closing, by 1909 depositors still had $ 1,208,071($ 40.1 million today) outstanding that they had not received. The damage was done. Freed people received clear messages about their value in the financial services marketplace. Though slavery was no longer legal, white
Portrait of abolitionist and social reformer Frederick Douglass, circa 1879. Douglass was the last president of the Freedman’ s Bank before its permanent closure in 1874.
capitalists could exploit them and their hard work, and they would have little recourse.
Aftermath of the Collapse
In the late 19th and early 20th centuries, African Americans, still shaken by the bank’ s failure, began to construct their own economic and business infrastructure. Because of the banking industry’ s practice of exclusion, African Americans were forced to create their own sources of capital and credit. If the financial services industry and the federal government were going to exploit and ignore them, then they would construct their own avenues to achieve economic stability. African Americans, though, did not forget the harm that the Freedman’ s Bank failure wrought on freed people. Black organizations of the early 20th century, such as the National Negro Bankers Association, encouraged Congress to give serious consideration to a more robust program of depositor compensation. Advocates such as W. E. B. DuBois argued that the federal government had failed to protect African Americans during Reconstruction. He asserted that such negligence, by bank administrators and federal authorities, would bankrupt African Americans for generations to come. He did not have confidence in the political will of white politicians to advocate for Black Americans. When asked in 1927 about the possibility of further compensation for depositors for the bank’ s failure, DuBois wrote a sobering
National Archives and Records Administration
16 FINANCIAL HISTORY | Spring 2025 | www. MoAF. org