Depositor Behavior and Institutional Trust: Evidence from the Freedman’s Savings Bank

Abstract

Using a novel dataset from the Freedman’s Savings and Trust Bank, a large, multi-branch 19th century bank chartered to serve newly freed American slaves in the aftermath of the Civil War, we examine how trust altering events impact depositor behavior. We find that financial panics have a significant impact on new and existing depositors which varies significantly across regions. This impact is unrelated to distance to the source of the panic but does depend on factors related to the fragility of trust within the local community. We also find that non- financial events which impact institutional trust more broadly have a strong impact on impact banking participation. Our results demonstrate how the fragility of bank run equilibria may have feedback effects on savings and wealth creation in disenfranchised populations.

Keywords: banking, bank runs, financial literacy, development economics

JEL Classification: G21, N11