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Social Sciences History Seminar

Thursday, April 25, 2024
12:00pm to 1:00pm
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Baxter B125
Financial Scarring and the Failure of the Freedman's Savings Bank
Vellore Arthi, Assistant Professor, Department of Economics, UC Irvine,

The failure of the Freedman's Savings Bank, (FSB) one of the only Black-serving banking institutions in the early post-bellum South, was an economic catastrophe and one of the great episodes of racial exploitation in post-Emancipation history. Can events like these permanently alter financial preferences and behavior? To test this, we examine the impact of FSB collapse on insurance-holding, an alternative savings vehicle that was both accessible and extremely popular over the late 19th and early 20th centuries. We document a sharp and persistent increase in insurance demand in affected counties following the shock, driven disproportionately by Black customers. We also use FSB migrant flows to disentangle place-based and cohort-based effects. In so doing, we provide evidence identifying psychological and cultural scarring as a distinct mechanism underlying the shift in financial behavior induced by the bank's collapse. Horizontal and intergenerational transmission of preferences further help explain the shock's persistent effects on financial behavior.

For more information, please contact Diana Bohler by phone at 626-395-4220 or by email at [email protected].