Leading abolitionists compelled Congress to establish a banking system for people of color, and in particular, Black soldiers who had no place to keep the compensation they received for their service in the Union Army. Banks would not serve Blacks and even refused service to those who had joined the military. The Freedman’s Bank was a separate and unequal financial system birthed from several previously established banks – created under the auspices of various Union Army generals – such as the Military Savings Bank at Beaufort, South Carolina which was opened in 1864 by General Rufus Sexton. Congress chose to not subject the Freedman’s bank to federal regulation by the Office of the Comptroller of the Currency and, instead, placed a Board of Trustees over the bank. The Board was largely comprised of Wall Street investors and real estate moguls, some of whom raided the depositors’ savings for their own purposes. The system grew to have 33 regional banks which reported to the central bank located in Washington, DC.
Records from the Freedman’s Saving and Trust Company reveal that newly emancipated slaves and other people of color used the system to save money to purchase land, build houses, and establish businesses. The financial system would serve as an extremely important resource for Blacks and others and when the system failed, many Blacks lost faith in banking institutions. Depositors in the Freedman’s Bank had been told that their hard-earned savings would be guaranteed by the federal government but this turned out to not be the case.