Societal Inequality and Financial Market Participation: Evidence from the Freedman’s Savings Bank

Abstract

Using a unique set of linked records from the Freedman's Savings Bank, we examine how depositors react to an evolving financial crisis, and how this behavior impacts policy makers' goals of increased financial participation. We find that the target black depositor responds similarly to white depositors in nationwide panics but more slowly in environments where bank-specific information is present, with white depositors twice as likely to close their accounts before the bank's failure and disproportionate losses born by community organizations. Our results demonstrate how the structure of simple financial institutions can create systematic disadvantages for minority communities.

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

JEL Classification: G21, N11