Societal Trust and Financial Market Participation: Evidence from the Freedman's Savings Bank

Abstract

Using a novel dataset from the Freedman's Savings Bank, we examine how societal trust impacts policy makers' goals of increased financial participation and economic integration. We find that events that impact trust in political representation and public safety also impact financial participation. We further find that black depositors are significantly less likely to escape the bank's collapse and that depositors with stronger community ties are more likely to have wealth destroyed by the collapse. Our results demonstrate how the inherent fragility of financial institutions can disproportionately impact wealth accumulation in disenfranchised populations.

Keywords: banking, bank runs, financial participation, development economics, African American economic history, access to finance

JEL Classification: G21, N11