The Impact of Financial Inclusion on Minorities: Evidence from the Freedman's Savings Bank

This paper investigates whether minorities always benefit from financial inclusion. We show that the Freedman's Savings Bank, established in 1865 after the Civil War, collected deposits from recently freed enslaved people through an intensive marketing campaign based on coercive language and false claims. The advertising intensified when the bank started offering fraudulent loans to white businessmen, contributing to the bank failure in 1874. Our findings support a predatory view of financial inclusion: the negative effects of the large fraud and abuse of trust at the bank led to significant losses for Black depositors.