Social Sciences History Seminar

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.