Anyone with a basic knowledge of the Reconstruction period has heard of the Freedman’s Bank, but often only in a passing mention. As the story goes, it was the federal government’s attempt to provide formerly enslaved people with a path to economic stability – a monetary companion to the Freedmen’s Bureau. And it failed. End of story. The more well-informed scholar could possibly tell you that the bank’s demise was somehow related to the failure of Jay Cooke and Company that initiated the Panic of 1873, or that Frederick Douglass served as the bank’s final president. But even as a financial historian of the nineteenth-century United States, I was hard-pressed to provide my students with any further details. And until I read Justene Hill Edwards’s Savings and Trust: The Rise and Betrayal of the Freedman’s Bank, I had no idea how incredibly important this story was to complement and complete our understanding of the politics, the battles for civil rights, and the physical violence of the Reconstruction period.

Edwards divides the story into three acts: Savings, Betrayal, and Collapse. She begins with an examination of the hope and opportunity that came with the creation of this unique national “savings” bank. The seemingly well-intentioned (if paternalistic) founders of the bank sought to provide formerly enslaved individuals with the financial literacy and institutional support for economic stability as a new working class. Even more importantly, “the relationship between banking and citizenship became central to the bank’s propaganda to Black depositors” (115). Yet, as Edwards deftly demonstrates, the target population sought not stability but independence and freedom through land ownership. Thus, from the beginning there was a disconnect between the design of the bank, as a long-term store of savings to be invested conservatively in government bonds, and the needs and desires of postbellum Blacks for temporary storage of their growing wealth until it could be withdrawn for investment in land. Despite this misalignment of goals, aggregate Black deposits in the bank totaled an incredible $57 million by 1874.

Just as the political hope and possibility of Reconstruction quickly faded by the late 1860s, the economic opportunity promised by the bank succumbed to a deadly combination of greed and racism – a “betrayal” that occurred behind the scenes, hidden from the knowledge of the Black depositors. Led by financier Henry Cooke (brother of the more famous Jay Cooke), the bank’s finance committee began lending out the deposits in direct violation of the charter. The committee then successfully convinced Congress to reorganize the institution as a commercial bank, which would formally enable it to engage in the riskier extension of loans rather than the more conservative investment in bonds. The finance committee proceeded to lend freely to numerous businesses and individuals associated with the white trustees. By ignoring legislative restrictions on finance terms, collateral requirements, and insider lending, these loans were often in violation of even the more liberal rules of the institution’s new commercial banking charter. And these lucrative loan contracts, which went to already rich and well-connected white businessmen, were unavailable to the Black depositors who supplied the funds. Furthermore, the depositors were not informed of these radical changes to the bank’s structure and investment portfolio. The marketing literature – almost down to the day of its closure – continued to tout the bank as a sound, conservative savings bank, and continued to imply falsely that the safety and security of the bank were directly backed by the federal government.

It was hardly surprising that this overextension of depositor funds into high-risk loans led to the bank’s collapse. As it became clear that the bank was failing, the trustees convinced an ill-informed Frederick Douglass to assume the presidency – and thus to absorb the blame. “The white trustees’ decision to move forward with Douglass as bank president ensured that African Americans would bear the brunt of public criticism of the bank’s ultimate demise. The narrative would be that Black administrators mishandled the bank and Black depositors were unable to handle the economic responsibility of freedom” (202). As the bank unraveled, it became a political football in the ongoing battle between Democrats and Republicans. Some Democrats even equated the bank with “unnecessary welfare policies for the formerly enslaved” (227). In reality, the main reason for the bank’s failure was the fact that its white creditors refused to repay their overly generous loans. For the 83 percent of loans that had reached maturity by the bank’s closure, an astonishing 95 percent remained unpaid in 1874. Well-connected, white businessmen chose to use the hard-earned savings of Black depositors as their personal piggy bank, with neither scruples nor accountability. And despite several congressional investigations into the bank’s failure, no one was punished for the illegal behavior of the finance committee – no one, that is, except for the innocent Black depositors who only ever recovered a fraction of their money. As Edwards details, this economic violence helps to explain the severe mistrust of financial and governmental institutions by the Black community down to the present day. The outright theft of depositor funds is likewise a critical chapter in the story of the racial wealth gap.

Savings and Trust is the book you did not realize how much you needed. How this remarkably straightforward story went untold for so long remains a mystery, but Edwards has finally brought it to life in a manageable volume that is a damning indictment of the economic violence wrought on the postbellum Black community. Written with powerful yet accessible prose, it is a must-read for undergraduate and graduate students of Reconstruction and the Gilded Age, as well as anyone interested in the origins of the racial wealth gap.