The early black banks grew to support these insurance funds and the other functions of the mutual aid society. They were usually structured as savings banks, used primarily to safeguard the church’s or the society’s accounts. However, there were a few that were more ambitious and began to engage in fairly limited commercial lending. The most advanced black financial organizations after the Civil War were in the former capital of the Confederacy: Richmond, Virginia.
The Grand United Order of True Reformers was the first organization to offer a formal insurance policy. In 1888, the True Reformers Bank became the first of the fraternal banks to obtain a formal state banking charter.6
The founding of the True Reformers Bank exemplifies the climate in which these institutions were founded and the problems they were created to address. The bank founders explained that before their bank, when the mutual aid society had a large sum of money collected from new members, it was usually deposited with a white storeowner. But this shopkeeper could not be trusted and was reportedly “envious, bitter, and jealous of the progress made by the Negroes of this town." When a white mob lynched a black man, this shopkeeper “informed the white people of the large amount of money entrusted to his care and of the danger of allowing Negroes to organize in that community." The Order decided they needed to create their own bank, stating, “If we had a bank of our own, the white people would not have any information about our activities."7
All of the Order’s funds were deposited in its bank, and it operated conservatively. Five years after its founding, it was among only a few banks in Richmond able to pay out each of its depositors during the Panic of 1893, a feat that was celebrated across the black community as a source of pride. A black commentator wrote of the bank’s survival: “Amid the crash of banks, the hush of manufacturers’ hammers, their wheels, cogs, and belts, your Savings Bank moves gloriously on, while none dare molest her or make her afraid. She has paid every check presented to her, while others have dropped their heads, drooped their wings and failed, having their very life choked out of them." The Richmond Times confirmed the bank’s success through the panic: “The Savings Bank, Grand Fountain of True Reformers, the only colored banking institution in this city, has made a record during the recent financial difficulties. It is the only bank which honored all checks and did not stop paying full value in the currency." For this and its longevity, the bank was dubbed the “Gibraltar of Negro Business."8
Still, not even the Gibraltar could survive an expansion into full-scale commercial lending. After the 1893 panic, the bank began offering loans to community leaders and to finance the Order’s own ventures, which included real estate, a home for the elderly, a chain of grocery stores, and other commercial ventures. After several of these businesses suffered heavy losses, the bank folded in 1910.9
There were certain advantages to these “affiliated banks,” or banks that worked in support of a church or fraternal society. These banks had a steady and reliable source of deposits coming from the monthly fees members paid to the societies. This relationship and the conservative use of these deposits made these banks the most durable of the black banks during a turbulent era for banking. However, these banks also faced specific challenges. When they began to offer loans, there was often a dangerous conflict of interest. Successful banking relies on good underwriting, or the ability to choose between a profitable loan and a losing loan or a creditworthy borrower and one who is likely to default. This is not an exact science, and banks are often famously wrong, but this sorting of borrowers is a bedrock of sound banking. Because these affiliated banks were created to serve the needs of a society, church, or community, they often made loan decisions based on factors having less to do with good underwriting and more to do with community need or pressure from well-intentioned leaders or clergy, who were often unaware of bank operations. Because these banks were usually part of a religious organization, their operations were also infused with religious meaning, which complicated their lending decisions.
Customers of these banks expected to receive services and terms, according to one black banker, “on the basis of friendship rather than according to strict up-to-date [business] methods.” In describing the failure of the Wage Earners Savings Bank, established in 1900 in Savannah, Georgia, black banker Arnett Lindsay observed that the bank’s “failure was quickened . . . by the inability of the bank to collect many of the commercial loans which were not made on the sound financial condition of businesses requesting credit but on friendship.” Lindsay added that “a large number of Negro business enterprises have been developed because they have had the support of churches and lodges,” so that patrons of these organizations would often expect special treatment “because of their long connections with fraternal and religious establishments.” And banks that did not provide favorable treatment to members of an affiliated group would “lose their support and invite their antagonism.”10
The affiliation between the black bank and the black church was therefore a double-edged sword, bolstering support for the banks but raising expectations that these institutions would treat clients as “friends" and not as customers, or, even more unsettlingly, as “debtors." This conflict was not limited to affiliated banks. Black bankers often complained that black customers expected black banks to give them more favorable deposit rates or lending terms than white institutions offered.11 The touchy relationship between these banks and the communities they served was inevitable given the paradoxical pursuit of these banks. These banks represented uplift and progress, but they were businesses, which meant that there would always be a conflict between the black banker’s dual roles as lender and community leader.
The other noteworthy fraternal society bank was Maggie Walker’s bank. Walker was the first black woman to own a bank and the second woman of any race to do so in the United States.12 She was born in 1864 in Richmond, Virginia. Her mother was a former slave and her biological father was an Irish Confederate soldier. Maggie and her mother lived in abject poverty after Maggie’s stepfather was murdered when she was young. Her mother made a living by washing laundry for the area’s wealthy whites. Maggie was a brilliant student, and after she finished high school at age nineteen, she became a teacher, but was forced to quit when she married (it was illegal for married women to teach).13
Maggie Walker was a member of the Order of St. Luke’s mutual aid society, which was in jeopardy due to a dwindling membership. She quickly got to work and turned the dying organization into a thriving one. Based on the needs she observed in her community, she established a newspaper, a printing press, an insurance company, and a college education fund. In 1903, she started St. Luke Penny Savings Bank with $9,400 collected from small deposits of the group mem-bers.14 She organized the bank as a cooperative and sold shares to the Order’s members, who became joint owners. She convinced the Order’s members that a savings bank could take their “hard-earned nickels and turn them into dollars." She created little cardboard banks for the kids who came into her bank with their mothers and taught them how to save their money. Walker believed that these savings accounts would help her kin achieve self-sufficiency and equality.
By running a safe bank, Walker was working for her community, race, and gender. “God knows I love this race of mine, especially the women. . . ." She dedicated the bank to helping black women achieve financial independence.15 “The great all absorbing interest, the thing which has driven sleep from my eyes and fatigue from my body, is the love I bear women, our Negro women, hemmed in, circumscribed with every imaginable obstacle in our way, blocked and held down by the fears and prejudices of the whites—ridiculed and sneered at by the intelligent blacks."16 But Walker was not just an idealist—she was one of the most successful black bankers of her time. Her notoriety as a female bank executive only grew when she became the first black banker to be extended membership in the Virginia Bankers Association. She accepted the invitation and remarked, “I shall hope to conduct myself so as to reflect credit upon my rac
e and people."17 The governor of Virginia said of Walker in 1924, “If the State of Virginia had done no more, in fifty years, with the funds spent on the education of the Negroes than to educate Mrs. Walker, the State would have been amply repaid for its outlays and efforts."18
By 1920, the bank had reportedly helped its customers buy 600 homes, a remarkable feat during a time when mortgage loans were rare.19 During the Great Depression, Walker managed a merger that consolidated her bank with two other black-owned banks, saving all the banks in the process. Walker was appointed chairman of the board in 1931, but she died a few years later in 1934 at the age of seventy of diabetic gangrene. Maggie Walker’s bank endured the Great Depression and two world wars, but it could not survive the 2008 financial crisis.20
There was another cohort of black-owned banks formed between 1888 and 1900 that were not directly linked to fraternal societies or churches. Some of these pioneering private black banks, about thirty in total, attempted full-scale commercial lending, but most were short-lived and unsuccessful. “Pioneers under such conditions often become martyrs," said one black businessman. Many of these banks fell, just like their white counterparts, under the stress of the Panic of 1893. The first private black-owned bank was the Capitol Savings Bank, which was organized in October 17, 1888, by a group of prominent black community members in Washington, DC.21 The former headquarters of the Freedmen’s Bank, dubbed “the mecca of Negro finance and education,” was a fitting home to the first black commercial bank. The bank survived the 1893 panic, but failed quickly after severe loan losses in 1904.22 This period marked the most turbulent time for the nation’s banks, both white and black. Many banks lived short and rocky lives and bank failure was the norm, with almost yearly bank panics between 1880 and the culminating banking catastrophe of the Great Depression. The average lifespan of a bank during this era was about five years.23
In 1890, the Alabama Penny Savings and Loan Company was organized in Birmingham, Alabama.24 The bank was founded by a schoolteacher and a Baptist clergyman with the help of ten thousand community members who deposited over $200,000 into the bank. The bank thrived in Birmingham as a commercial bank. Booker T. Washington visited the bank in 1900 and congratulated it for “the excellent and far reaching work that has been done in Birmingham and vicinity.”25 To Washington, this bank was an exemplar for the entire race. “Few organizations of any description in this country among our people have helped us more, not only in cultivating the habit of saving, but in bringing to us the confidence and respect of the white race.”26 Washington believed wholeheartedly in black banking and said that it was black savers who would be “the ones who are going to control the destinies of the country.”27 The bank lent money to Birmingham’s black churches and professionals. In 1913, the bank helped construct a six-story church building called the Pythian Temple, using the black-owned company Windham Construction. But in 1915, the overextended Penny Savings bank failed due to a run.
If their affiliations within the black community were a source of weakness for these banks, so was their lack of association with any of the white banks in the area. To survive a run, a bank can either find liquidity from another bank or sell off its loans to another bank in a “fire sale” so that it can meet depositor demands and live to open its doors another day. Both of these solutions proved very difficult in a Jim Crow economy, as seen in the case of the Penny Bank’s failure. The bank first sought liquidity help through a shortterm loan from a local bank, the Steiner Brothers, but that larger bank chose instead to help another struggling white bank, the First National Bank.28 This could have been due to racism or to the Penny Bank’s weaker loan portfolio, possibly both. Safe banking would have required affiliations across racial lines, which proved difficult in the Jim Crow South. The segregated economy also prevented the other route to survival—selling off bank assets. Because their assets were long-term loans to black churches and based on black real estate, they were considered risky, and other banks were not willing to buy them. These loans were essentially “frozen" on their balance sheets and could not be sold in an emergency. This would be a recurring theme for black banking before the Great Depression and was a direct result of Jim Crow banking.
When the bank closed, one of the bank’s founders, N. B. Young Sr., observed, “It was an honest effort to establish a bank in the very heart of the South."29 All its depositors lost their savings when the bank failed. One such depositor was A. G. Gaston, who would go on to open his own savings and loan in Alabama in 1957—the only black-owned bank in Birmingham after the Penny Bank’s failure.30 The shock and devastation of the 1915 failure was still alive in the community half a century later, and Gaston had to assure the community that their deposits were safe in his bank. For black communities living on so little, the loss of their savings was surely a devastating financial setback. To lose your money at the hands of a black institution that was an integral part of your core community created a stark dilemma for depositors and the bankers responsible for safeguarding their life savings.
Hemmed in by the walls of Jim Crow, black communities had to create their own financial institutions, but the injustice of segregation that created these banks also made them weak. In other words, the same forces of racism and segregation that created black banks would continually work against their success. James Baldwin explained the dilemma with regard to black leadership, which he defined as a “nicely refined torture [of] having been created and defeated by the same circumstances." Baldwin explained that black leaders were created by “the American scene, which thereafter works against them at every point; and the best that they can hope for is ultimately to work themselves out of their jobs."31
Yet several leaders emerged with national influence and far-reaching visions about how blacks would overcome their circumstance. The prominent black leaders of the early twentieth century, Booker T. Washington and W. E. B. Du Bois, urged contrasting paths toward progress, with Washington focusing on building a segregated black community and Du Bois demanding full integration and equal rights. Washington and Du Bois, however, were surprisingly in sync in their support for black banking as a critical feature of the economic road map through and out of a milieu of adverse conditions.
Washington, a conservative southerner who had been born into slavery, was labeled “the great accommodator" because he accepted segregation and black political disenfranchisement and stressed the significance of industrial education.32 Washington gained national prominence after his 1895 Atlanta speech, later dubbed “The Atlanta Compromise," in which he seemingly endorsed segregation, telling a majority-white audience that “in all things that are purely social we can be as separate as the fingers, yet one as the hand in all things essential to mutual progress."33 Though Washington’s most controversial stances were his political capitulation, or perhaps “capture" by the white elite, his forceful advocacy of black business has been less controversial. Black nationalists and radicals during the civil rights era adopted his stance toward a segregated economy even while denouncing him as an Uncle Tom.34 Washington believed black business was a means of achieving prosperity from the ground up.35 He promised that if they cultivated “industry, thrift, intelligence and property," blacks would eventually be accepted by white society.36
Washington’s program of building a segregated black business economy was exactly the agenda favored by the white Republican political establishment and northern industrialists. Washington’s critics even accused him of being a leader created by white industrialists because he delivered them a subdued population of industrious laborers whom they could continue to exploit for profit.37 All Washington asked of whites was philanthropic support of his nonprofit educational institutions, and they delivered. Andrew Carnegie contributed $2,700 yearly to finance Washington’s institutions and organizations, calling him the “combined Moses and Jehovah of his people" because he promoted “good moral character and industrial efficiency, resulting in ownership of property." He also liked the fact that Was
hington was pursuing the “wise policy" of not pushing for “the free and unrestricted vote immediately."38 One white booster admitted as much, praising Washington’s conciliatory agenda because he believed Washington “shall not threaten the Anglo-American supremacy."39
It wasn’t just his submissive stance that appealed to wealthy capitalists like Carnegie and Rockefeller, but also his complete faith in their “gospel of prosperity,” which held that free-market capitalism, property ownership, and bootstrap entrepreneurship was the one and only path toward equality, prosperity, and personal virtue. Washington believed that this gospel espoused by white capitalists would apply equally to black entrepreneurs; that despite segregation, discrimination, and trade restrictions, blacks had equal access to the free market and could build wealth through hard work. He also believed, along with his white capitalist boosters, that once blacks accrued enough wealth through hard work, the wealth itself would eventually defeat Jim Crow. A bank account and ownership of property became articles of faith for black progress.40
Washington believed that wealth would bring self-respect (“A man never begins to have self-respect until he owns a home”),41 respect from whites (“whether he will or not, a white man respects a negro who owns a two-story house”), power (“a black man can get a mortgage on a white man’s house that he can foreclose at will”), and even the restoration of the vote, because “a white man on whose house the mortgage rests will not try to prevent that negro from voting when he goes to the polls.”42 Washington believed that if a black man had enough wealth, even Jim Crow would not apply to him. “Do you suppose that, when [a wealthy] black man takes his family aboard the train, they are going to put him in a Jim Crow car and run the risk of losing that $10,000 a year? No, they will put on a Pullman palace car for him.”43 This hope was tragically naive. Washington did not consider that instead of respect, a white man would resent the black man’s $10,000 and the two-story house. And did he suppose that a white man would willingly submit to any black man who threatened foreclosure on his home rather than opt for violence?
The Color of Money Page 6
