The most disastrous bank failure that occurred while Mr. Knox was Comptroller was that of the Freedman's Savings and Trust Company, which suspended June 29, 1874.

While this institution was not under Federal supervision at any time during its active existence, the liquidation of its affairs after failure was finally placed in charge of the Comptroller of the Currency.

During the progress of the Civil War, when the colored soldiers became a considerable element in the military service of the United States, it became necessary to make some provision for the safekeeping of their pay and bounty moneys for their benefit and that of their families. To meet this exigency, military savings banks were established at Beaufort, S. C, and Norfolk, Va., centers at that time of colored troops. The subsequent emancipation of the race increased the necessity for and suggested the advisability of establishing some financial agency which would more fully meet this demand, and Congress, under date of March 3, 1865, passed an Act constituting Peter Cooper, William C. Bryant, and forty-eight others, a body corporate, under the title of the "Freedman's Savings and Trust Company," to receive on deposit such sums of money as should from time to time be offered by or in behalf of persons who had heretofore been held in slavery in the United States, or the descendants of such persons, and to invest the same in the stocks, bonds, Treasury notes, or other securities of the United States.

No capital stock was required, but in lieu thereof, the Charter Act authorized and required not exceeding one-third of the deposits to be retained in a readily convertible form, for the purpose of meeting withdrawals and to defray the operating expenses of the company.

The principal office of this institution was located in Washington, D. C, opposite the north front of the Treasury Department, in a four-story brownstone building owned by the company. After the bank failed, this building was purchased by the Government for the sum of $250,000. For some years thereafter it was occupied by the Department of Justice and the Court of Claims and was then demolished to make room for the new De-partment of Justice building to be erected on the site. The sum appropriated by Congress, however, was not deemed sufficient for the erection of a building adequate and suitable for the Department's needs, so the site remained vacant until 1918, when a building was erected thereon by the Government for the use of the Treasury Department and is connected with the main building by a tunnel underneath Pennsylvania Avenue.

At the date of the failure of this company it had thirty-four branch agencies in active operation, located at the principal cen-ters of colored population in Southern States, except one each in New York, Philadelphia and Baltimore.

During the ten years of its active existence, the deposits in this institution aggregated over $57,000,000, and its depositors numbered over 70,000.

From 1865 to 1870, the bank seemed to have been honestly and successfully conducted by the trustees in charge of its affairs, and apparently enjoyed the full confidence of its depositors, in the knowledge and belief that their deposits were required by the Charter Act to be safely invested in the stocks, bonds, treasury notes and other securities of the United States.

In May, 1870, however, Congress amended the act of incorporation empowering the trustees to invest one-half of the deposits received "in bonds or other notes secured by mortgages on real estate in double the value of the loan."

This amendment opened the door to the wild speculation in real estate which immediately followed, and to other culpable transactions which soon absorbed the funds of the bank and led to the failure of the institution.

When this proposed amendment was under consideration in the Senate in 1870, Senator Cameron of Pennsylvania vigorously opposed its adoption for the reasons, he said, that -

The worst thing to loan money upon by an institution of which a number of persons have the direction is real estate.

If I had money to loan and did not care about using it soon and wanted to invest it for a long time, I might think it very well to loan it upon bond and mortgage, because I should myself estimate the value of the property which was offered to me according to my own judgment. But it is not so in a board of ten or fifteen directors.

Mortgages are all right, in their way. They are good security for money, but, the trouble is, money once in them stays there. They have no commercial value. They have no quotation. Banks loaning their money upon them would soon absorb their capital and find themselves exceedingly embarrassed in case of distress or a panic. They are not readily converted, and it is only idle capital that seeks such investments. Banking capital is of a different character. If tied up in mortgages or other investments, its usefulness becomes paralyzed and the law defeated under which the bank was organized. This is the direct cause of the unfortunate condition of the early banks in Kansas, and in many other of the extreme western states and territories. They loaned money to settlers at fabulous rates and took mortgages upon their farms in violation of law. They soon came to grief and found their vaults full of mortgages upon real estate that would not pay twenty-five cents on the dollar and their money all gone.

He contended further that the principle proposed was a dangerous one, and should not be incorporated into any banking institution. He stated that it had been his experience that whenever a bank like the Freedman's Savings and Trust Company invested its funds in real estate it went to destruction. This prophecy was fulfilled four years later by the failure of this bank.

At the time this radical change was authorized in the character of the securities to be taken for loans, the deposits amounted to at least $2,000,000. Had the original Act been allowed to remain as it was and the requirement in respect to investments been complied with, as they undoubtedly would have been, the face value of the United States securities which the bank then should have had, would have exceeded the sum stated by a very large percentage, and their market value would have been much greater, but at the date of failure of the bank only $400 in United States securities were found among the assets.

On June 29, 1874, the bank having been ascertained to be insolvent, was closed by a vote of its trustees, who appointed three Commissioners to wind up its affairs. These Commissioners served from July 11, 1874, to February 21, 1881, on which later date, by Act of Congress, all the remaining assets of the bank were transferred to the custody and supervision of the Comptroller of the Currency, who was placed in charge of the liquidation of its affairs, and was allowed compensation of one thousand dollars per annum.

At the time of the failure of this company there were 61,131 depositors, to whom there was due $2,939,925.22. Five dividends were declared, amounting to sixty-two per cent. of the deposit liabilities, aggregating $1,822,753.62. Payment of these dividends was made from time to time, and at the close of the year ended December 1, 1920, $1,733,475.71 of the above-mentioned amount had been paid and the affairs of the bank finally closed.

Repeated efforts have been made to secure an appropriation by Congress for the payment of the remaining thirty-eight per cent. due the depositors, and bills have been introduced from time to time and favorably reported in one or the other House. In 1888 a bill passed the Senate authorizing the payment to depositors of African descent the difference between their claims and the dividends yielded by the assets of the company, but failed of favorable action in the House of Representatives because of the restriction in the bill to the payment of colored depositors only.

While this institution was intended to be a colored people's bank exclusively, and the Charter Act authorized the receipt of deposits only "by or on behalf of persons heretofore held in slavery in the United States or their descendants," a large proportion of the depositors were white.

The reason given for accepting deposits from the white people was that the officers of the company did not feel that it was incumbent upon them to inquire when a deposit was tendered by a white person, whether it was being made on behalf of a colored person. So every deposit that was offered was received without question.

This institution was not under Federal supervision and the United States Government was in nowise responsible for its management. The only ground upon which the Government can be urged to assume its remaining liabilities is one purely of sentiment. The creditors have no legal claim upon the Government. But it is contended that illiterate colored people were induced to deposit their money in this bank in the belief that it was a Government institution and that the Government assumed responsibility for its liabilities. A considerable number of the depositors in this company, however, were intelligent white people, and many of the colored depositors were as intelligent and as well informed in regard to the character of the institution and the Government's connection with it as the average depositor in a national bank. So far as the Government's relations with this institution are concerned the creditors of an insolvent national bank have a more equitable claim on Congress for an appropriation to pay the bank's liabilities than have the depositors in the Freedman's Savings and Trust Company. The Government does undertake to assume supervision over national banks, but it had no supervision whatever over this institution.

If Congress should appropriate the money necessary to pay these claims, it will be found very difficult to distribute this fund among the colored creditors or their heirs. Most of the original colored depositors are dead, and because of the inability of their heirs to prove their claims for balances due, it was almost impossible to distribute any considerable amount of the remaining funds in the hands of the Commissioner since the repeal of the bar to further payments, and during the later years the larger part of such fund was consumed in the payment of the salary of the Commissioner and clerical expenses. The small amount due many of these colored depositors would not warrant the expense of proving a claim. At the time of the failure of this institution more than fifteen thousand of the depositors had to their credit an average balance of not more than five dollars. As a great many of these depositors are dead and most of them left several heirs, some of whom have also died, the death of the depositor and any deceased heir would necessarily have to be proven by the surviving heirs to entitle them to receive the balance due.

It is exceedingly doubtful, therefore, whether the class of colored depositors in this institution intended to be relieved by such an appropriation would be benefited thereby. And as far as the other depositors are concerned, the Government would establish a very bad precedent in assuming for their benefit the liabilities of an institution for whose management and solvency it was in nowise responsible.