From the Roots: Two Early Icons in Black Banking

There are some 22 Black-owned or led banks, and approximately 240 credit unions in the United States. Historically, Black-owned/led financial entities have established themselves in and around predominantly Black communities. They provide customers with much-needed services and offerings, such as financial education, checking and savings accounts, mortgages, and small business loans.

Begun out of necessity, these community-oriented entities are smaller than their national, major-player counterparts. Despite that, they are part of a greater vision of empowerment by keeping money in the community. Consumers have responded positively to these institutions as evidenced in 2022, when Black-owned banks reported nearly $5 billion in assets, according to HBCU Money’s 2022 African American Owned Bank Directory. 

A few years ago, initiatives on social media urging Black consumers to patronize banks that cater to their specific needs resulted in the hashtag #BankBlack, but the need for such institutions has been clear for a century and a half. And the need persists today. In 2019, reports consulting firm McKinsey, Black family wealth averaged out at $24,100 while 47% of Black households were under banked or unbanked entirely. 

According to a 2022 Survey of Consumer Finances done by the Federal Reserve, the typical Black family has about 1/6th the wealth of the typical White family. While ownership of traditional building blocks of wealth – homes, stocks, and businesses – has increased, rates still lag for Black families.

Black-specific banking harkens back to the Civil War when military banks opened to assist soldiers and their families with financial matters. Since then, niche banks have established themselves as minority-friendly entities, catering to women, Hispanic, and Black clients, just to name a few. Here, we look at two notables within the Black banking movement, the Freedmen’s Bank and Saint Luke’s Penny Trust.

Freedman’s Bank

In the post-Civil War era, newly freed slaves presented a new class of worker, earner, and consumer. Called “Freedmen,” they settled into communities and began new lives, which presented unforeseen challenges. Few enslaved men had ever had the opportunity or need to handle money. One government attempt to address issues of Black money and finance came courtesy of Freedman’s Bank. 

During the war, enslaved men entered the armed forces and fought as soldiers. Others ran away from their enslaved situations, seeking steady work in the Union garrisons. For virtually all of these men, their Army wages (paid only by the Union Army; the Confederate Army didn’t pay its Black soldiers) represented the first time they earned money. Money and everything it entailed (saving, spending, investing, taking loans), needed explanation.

The Freedman’s Bank – formally called the Freedman’s Savings and Trust Company – was first proposed by abolitionist and minister John Alvord. It received its charter from the Freedman’s Bureau. The Bureau’s intent was to aid former slaves as they transitioned to lives of freedom, including earning money outside the military.

The first Freedman’s Bank was established in New York City and opened on April 4, 1865. With as little as 50 cents to deposit, customers lined up and poured their money into Freedman’s Bank in droves. The bank advertised up to 7% interest on accounts and declared that unclaimed accounts would pay for schools to educate the children of the newly freed. 

Throughout its relatively short life, about 70,000 depositors sought to open and close accounts at the bank, adding over $57 million in deposits. Freedman’s opened branches in dozens of communities and went on to commission a $200,000 building to serve as its headquarters in Washington, D.C. But despite its auspicious start, issues arose that would ultimately cripple  Freedman’s Bank.

No single culprit contributed to its demise, but a post-war nation and the government oversight of Freedman’s helped to harm the institution. Congress was supposed to oversee the bank’s trustees but hadn’t done its regularly needed due diligence. After the Comptroller took a look at the books, the venture’s dire straits became evident.

In a last-ditch effort to save the venture, Freedman’s brought in abolitionist and orator Frederick Douglass to sort out the bank’s problems. But after his own examination of the books, Douglass found circumstances at Freedman’s too far gone for the bank to be saved. On June 29, 1874, trustees shut down Freedman’s, which represented $3 million in losses for its 61,144 depositors.

But  Black banking persisted.

 Maggie Lena Walker: Girl Boss

History can point to the many financial institutions that have opened with the best of intentions only to fall victim to factors such as financial crashes, insolvency, or reckless administrative practices. Serving a minority community can have its own unique challenges. One Black-owned bank, the St. Luke Penny Savings Bank of Richmond, Virginia, beat the odds in two ways: It still survives today, albeit under a new name, and it was started by a woman – a Black woman who was the first female bank president in the U.S.

 Opened on November 2, 1903, the bank welcomed hundreds of patrons on its opening day. They lined up to deposit over $8,000 in funds and purchase $1,270 worth of bank stock. At the bank’s helm stood a most remarkable leader, a woman; Maggie Lena Walker, who served as the bank’s president.

A native of Richmond, Walker got into community activism at a young age. At 14, she conducted humanitarian work through the local chapter of the Independent Order of Saint Luke (ISOL), a membership-based benevolent society of African Americans. In exchange for small monthly dues, sick ISOL members received quality care, and the organization also covered members’ funeral expenses. 

Prior to applying for the bank charter, Walker was a college graduate and had worked as a schoolteacher. After she married, she ended her teaching career to align with the school’s policy that forbade married women from teaching. After leaving her job as a teacher, she poured her time into working for the ISOL.

In 1901, at an ISOL organization convention, Walker proposed a bank. She envisioned a financial entity that provided Black customers with services that couldn’t always be found at the local banks. 

When Black customers sought bank services, they sometimes faced discrimination or unfair stereotypes. Banks had the right to refuse service and deny loans and to charge higher interest rates based on race or color. Those that served Black customers often assumed they would be more likely not to pay back loans and that white patrons would stop banking there if they knew the bank welcomed Black patrons.

Walker understood that the lack of financial institutions serving Black communities needed to be addressed. Continued banking at institutions that openly discriminated against them, she said, helped to “feed the lion of prejudice.” 

St. Luke received its bank charter in 1902 and the group commissioned Charles Thaddeus Russell, a local Black architect, to design the bank’s building. To promote the bank, Walker turned to its vast home-based network, urging members of St. Luke to purchase the bank’s stock and to open accounts there. “Let us put our moneys together. Let us use our moneys; let us put our moneys out at usury among ourselves and reap the benefit ourselves,” Walker said. “Let us have a bank that will take the nickels and turn them into dollars.”

After the bank opened, community outreach became part of its operations. To encourage children to become patrons of the bank, members of St. Luke received penny banks. After a child successfully saved up 100 pennies, they could then open their own bank accounts.

By 1920, St. Luke’s funded over 600 mortgages, making the dream of home ownership a reality for its customers, according to the National Parks Service. As the 1920s gave way toward the 1930s, the Great Depression loomed. Many banks went under, but St. Luke survived. On January 2, 1930, it merged with nearby Second Street Savings Bank and opened under the new name Consolidated Bank and Trust. Walker served as Chairman of the Board of Directors until her death in 1934.

The merged bank survived other financial wrinkles and continues to operate under the name People’s Bank in Richmond.

While Freedman’s Bank ultimately failed as a financial institution, it succeeded in establishing the tradition of banks serving minority communities. Of the relatively small number of such  banks in operation today, several have successfully existed and empowered their communities for more than 80 years. The largest Black-owned bank, OneUnited, has been in operation since 1982 and currently boasts more than $650 million in assets. And, despite their variance in years and asset-size, these banks continue the vision and the work begun in a war-scarred nation for a population that was just starting out.