A long-forgotten part of American history with a link to the credit union community was highlighted at a ceremony recently in the nation's capital with the commemoration of the Freedman's Savings and Trust Company, created after the Civil War specifically for former slaves and other black Americans in the wake of emancipation.
In anticipation of Black History Month, Helen Godfrey Smith, the head of Shreveport Federal Credit Union, Andrew Young, a former mayor of Atlanta, and Secretary of the Treasury Jack Lew gathered for a ceremony at Treasury Department to observe the 150th anniversary of the Freedman's Bank and commemorating the event by re-naming the Treasury Annex building as the "Freedman's Bank Building." The structure stands on the site of the original bank.
"Naming the Freedman's Bank Building recognizes an institution that symbolized a new future for African-Americans," said Lew. "The legacy of Freedman's Bank also serves as a reminder that we must continue striving for greater financial inclusion for all Americans — particularly those in underserved and minority communities — so that they can share in the benefits of our growing economy."
The Freedman's Bank, which existed for only 10 years before it collapsed in 1874, continues to influence and inspire thousands of credit unions and community banks that primarily serve black Americans.
During its Reconstruction-era heyday, Freedman's Bank counted some 100,000 African-American individuals and institutions as account-holders, maintained offices in 17 states, and had amassed $57 million in assets (the equivalent of about $1.2-billion today).
In an interview with Credit Union Journal, Smith related some of the history of the Freedman's Bank. At the end of the Civil War, she noted, there were approximately four million ex-slaves across the southern states and Washington. Congress passed a bill in 1865 that established the Freedmen's Bureau within the War Department to undertake relief efforts and the necessary Reconstruction activities that would lead to full citizenship for ex-slaves.
President Abraham Lincoln signed the bill, which included incorporating the Freedman's Savings Bank, into law in 1865.
"The bank's purpose was to help newly freed African Americans become more financially stable and expand their access to capital," Smith stated. "Originally, the bank was headquartered in New York, but it later moved to the current site of the Treasury Annex building in Washington."
The Bank was created specifically as a repository for African American veterans, ex-slaves, and their families. "However, it also enabled other community organizations to build their financial strength," she said.
According to Blackpast.org, deposits at the bank were received only "by or on behalf of persons heretofore held in slavery in the United States, or their descendants." Also, up to 7% interest was permitted for bank deposits, while any unclaimed accounts were to be "pooled into a charitable fund that was used to educate the children of ex-slaves."
In addition, by 1870 almost all the local bank branches were run by African Americans themselves.
However, after a financial panic in 1873, the bank collapsed the following year.
According to a speech given by Reginald Washington at the National Archives and Records Administration in 2001, the bank failed due to "mismanagement, abuse, fraud, and other economic factors" and left "tens of thousands of its depositors in economic ruin."
Not even Frederick Douglass, the famous abolitionist and author, who was elected president of the Bank in 1874, could save the institution despite donating "tens of thousands of dollars of his own money" to the institution. Douglass had asked Congress to intercede, but the bank was closed on June 29, 1874.
Smith characterized the failure of the bank and subsequent loss of the early financial gains of those families as a "catastrophe."
"It destroyed the families financially but it also destroyed their trust in the banking system," she said.
Symbolically, Smith indicated, this bank represented "what might have been," given its rather short existence and tremendous potential.
"It became clear that the demise of this bank in 1874 deprived a struggling people of the resources to move toward financial recovery," she lamented. "The bank was chartered and was successful in many ways. People who had never had access to traditional banking services gained [such] access and built trust in this Bank. They changed their mindset and valued the opportunity the bank provided for them to have access to capital to build businesses and their families' futures."
Smith also believes the bank's failure was unnecessary — and that the government at that time could have saved it by investing into the future of a generation of citizens to give them the chance that their White counterparts had enjoyed as a birthright. "Access to mainstream financial services at reasonable costs, coupled with the knowledge to use these services to build financial freedom would have meant more to the economic success of our country than almost any other investment," she commented.
Smith also suggested the bank's failure may have represented the "single most impactful failure during Reconstruction."
Twenty-six years passed between the failure of the bank and the emergence of credit unions in the U.S. in 1908.
"It is clear that upon the failure of the bank, the remedial need did not go away," Smith explained. "Credit unions serving primarily African Americans are now spending resources to teach and guide [their members] in a manner which first builds trust and shares basic knowledge of the power of access to capital. This history must inspire us to tell our stories, and remain faithful to the fight to use our opportunity now as a means to continue to build on what Frederick Douglas fought to gain for the early African Americans — economic equality."
Today, more than 140 years after the failure of Freedman's Bank and cataclysmic changes in U.S. society, Smith thinks that credit unions — now a huge and flourishing industry — offer a better option for black Americans than banks do.
"The average credit union has always been the beacon of fair and equal access regardless of race, color or creed," she said. "The chance for gaining access is simply better … along with the access to the knowledge and information of how to use the access to become financially free."
According to HBCU-Money, in 2015, there were 334 African American-designated credit unions (AACUs) with $5.6 billion in assets and almost 850,000 members. As an aside, the pervasive power of the church within the black community is highlighted by the fact that African American religious affiliated credit unions comprise approximately one-third of all AACUs and almost one-fourth of all US religious affiliated credit unions.
