EconExtra: Freedman's Bank and the History of Black-owned Banks in the US

Feb 20, 2021

EconExtra is a series of posts that go beyond the textbook, relating current events and recent developments in economics to content standards, and providing resource suggestions to help you incorporate the current events into your lessons.

The Headlines

Investopedia published a comprehensive review of all of the Black-owned banks by state earlier this month. In fact, there are only 41 in the country, including credit unions.During Black History Month, the following headlines warranted further digging into the history of Black Banking in the United Stated.  More recently, NBC ran a story highlighting the fact that Latinx and Black accountholders pay over twice as much in bank fees during the pandemic, according to a survey by Bankrate.  And with a new administration comes new discussion of how to alleviate the racial wealth gap (CNBC)

How did we get here?  A look back, particularly to the the history of Black-owned banks in the United States, may help explain. This history sets the stage for the situation much lamented in the news today—that communities of color tend to be unbanked, under-banked, and not well served by predominant banks in the US.  

A lesson on the history of Black-owned banks in the United States logically starts with the first such bank: Freedman’s Bank.

Freedman’s Bank

When and how was Freedman's bank created?  Here is the description provided by the Office of the Comptroller of the Currency

"…Congress on March 3, 1865, enacted legislation to establish the first-of-its-kind social services agency that became known as the Freedmen's Bureau, to administer a broad program of help and self-help. On the same day, it chartered the Freedman's Savings Bank, with the goal, as the African-American statesman Frederick Douglass put it, of instilling into the minds of the former slaves "lessons of sobriety, wisdom, and economy, and to show them how to rise in the world."

The need for the Bank's services was acute. Large numbers of slaves liberated by the Union Army had gone on its payroll. As this was the first bit of cash many of them had ever received, they needed a safe depository and basic financial education. The plan also called for the Bank to employ numbers of freedmen, giving them hands-on training and experience in the banker's skills." 

Of particular note is that Freedman’s was the only bank other than the First and Second Bank of the United States to hold a NATIONAL charter. Most banks hold one or more state charters. That is why you don’t see every bank in every state.

Primary Resources

The OCC article and Freedman’s Bank website are good sources of background information on the breadth of the bank's operations and a description of its failure. There are also some video options too. If you think a two-minute overview is sufficient, try the Black History In Two Minutes segment on Freedman’s Bank. For a more complete story, the University of Chicago video is only six minutes long and is very accessible.   This one does a good job explaining the bank’s failure and its significance.

Historical significance

There are a few things gleaned from these materials that struck me as particularly significant.  You and your students may discover more.

1) Freedman’s failure may be the root cause of distrust of government and financial institutions from Latinx and Black communities, leading many to remain unbanked.

2) Freedman’s failure set back a large swath of newly earning, wealth-building formerly  enslaved people back ten years in terms of building their lives, as if they had still been enslaved.

3) The records of these 37 branches contain detailed personal data on these 7,000,000 customers that may provide a critical ancestral link not documented elsewhere for the descendants of these customers (former slaves), and which makes their maintenance by the National Archives really important.

Lesson ideas

Brief lesson on Black-owned banks

Introduce the students to Freedman’s Bank with one of the videos. Have students read the Investopedia article and see if they can find a Black-owned bank in their state/area. If you use the longer video, see if during a discussion the students pick up on the significance of the bank’s establishment as well as its failure.

Incorporating this topic into a lesson on the role of banks

For a more comprehensive lesson on the role of banks in the economy, start with this EconLowDown lesson from the St. Louis Fed. It demonstrates to students how banks promote economic activity. The function of a bank and importance to prosperity may be a good introduction to why banks catering to disadvantaged communities could make the difference in their financial success or failure. Then add on the videos/article/discussion on Freedman’s Bank and modern Black-owned banks.

Need More?

Here are a couple other possible extensions.


About the Author

Beth Tallman