Booker T. Washington, the Founder of the Tuskegee Institute and the son of slaves, once wrote, “By habits of thrift and economy… we are coming up.” The American Dream is deeply rooted in the belief that thrifting and saving are the necessary means to an end that is comprised of prosperity and abundance.
Bank Incorporation and Early Success
This belief, coupled with the banking needs of formerly enslaved black soldiers, spurred the incorporation of the Freedmen’s Savings and Trust Company in 1865. Â “This bank is just what the freedmen need,” proclaimed Abraham Lincoln on March 3, 1865, as he signed the Freedman’s Bank Act and authorized the organization of a national bank for ex-slaves.
Due, in part, to aggressive recruiting tactics, the number of ex-slave depositors grew rapidly from 1865-1870. Thirty-four branches were established in cities across the nation, including Atlanta, Charleston, Philadelphia, and Washington D.C. “Go in any forenoon, and the office is found full of Negroes depositing little sums of money, drawing little sums, or remitting to a distant part of the country where they have relatives to support or debts to discharge,” reported a CharlestonÂ journalist in 1867. Â
Fraud and Failure
And yet, thrifting and saving did not yield desired results. The dream of prosperity and abundance slowly spiraled into a nightmare of fraud, mismanagement, and discriminatory lending.
In 1871, Congress authorized banks to provide business loans and mortgages. Paradoxically, such mortgages and loans were usually administered to whites at the expense of black depositors. Risky investments and lending patterns, coupled with cronyism and corruption at the level of upper management, slowly undermined the stability of the bank. According to Black Past,Â “By 1874, massive fraud among upper management and among the board of director had taken its toll on the bank. Moreover, economic instability brought upon by the Panic of 1873, coupled with the bank’s rapid expansion, proved disastrous.”
The Freedmen’s Bank was officially closed on June 29, 1874. At the point of closing, 61,144 black depositors were robbed of the modern equivalent of $66 million. The failure of the bank left many black depositors and borrowers distrustful of the white banking community, especially since the Freedmen’s Bank was established and managed by white men.
Present Day Challenges Â
In subsequent years, the white banking community has imposed higher interest rates on black borrowers or simply rejected their applications for mortgages and small business loans. Although black depositors should be far less concerned about being overtly robbed of their money today, research indicates that blacks continue to be treated far worse than whites when seeking loans or mortgages, even when all other variables, such as credit history or academic and professional credentials, are the same.
“If you are white and set out to get financing for an entrepreneurial venture, it might be a tough journey,” said Glenn Christensen, Professor of Marketing at Brigham Young University. “But, generally speaking, you would experience fewer obstacles and find more help along the way than if you came from an African American or Hispanic background.”
Why You Should Bank Black
In recognition of these age-old disparities in access, a growing number of community leaders are supporting black-owned banking institutions. “Empowerment starts with ownership,” explainedÂ renowned singer-songwriter,Â Usher,Â during a Black History Month appearance at the black-owned Citizens Trust Bank in Atlanta. “We’re here supporting Citizens Trust Bank as a black bank, but it also stands for the support of all the black businesses that they support. It’s all about supporting our own.”
Jared Brown currently coordinates a $25 million initiative at the United Negro College Fund (UNCF) designed to cultivate the next generation of African American innovators and entrepreneurs. He awards scholarships and administers an online entrepreneurship curriculum to more than 150 Â undergraduate scholars representing more than 40 colleges and universities. He also serves as operations director at Black upStart, an early stage social enterprise that supports entrepreneurs through the ideation and customer validation processes. He is a leading voice in the field of black entrepreneurship with publications appearing in Black Enterprise, Generation Progress at the Center for American Progress, and the Congressional Black Caucus Foundation.