Small banks in mostly red districts could lose funding under new Trump order

The Trump administration is targeting a federal program that subsidizes small banks in some of the poorest communities across the country, particularly in red states, as part of a wider White House push to reduce the size of government.

An executive order signed by President Donald Trump late Friday aims to shrink the Community Development Financial Institutions Fund, which supports more than 1,400 smaller lenders operating in rural and urban areas that aren’t adequately served by larger banks. The program has injected billions of dollars into these lenders through grants, tax credits and bond guarantees.

Of the roughly 5,900 headquarters and branches of these community lenders, 60% are in Republican congressional districts and 55% are in states with two Republican senators, according to the Community Development Bankers Association, a group representing the community lenders.

Friday’s order is the latest example of policies under Trump that could harm his own voters, including farmers in red states who are at risk of being targeted for retaliation by other countries for the president’s tariff policies. Elon Musk’s push to shrink the federal government has also generated outrage from voters at town halls in bright-red districts.

Friday’s order directing the elimination of “nonstatutory components and functions” of the fund triggered pushback from the community lenders, who are worried about losing funding. They stressed that the law already authorizes all of the fund’s activities.

It also drew concern from Capitol Hill, where the community lenders have traditionally enjoyed bipartisan support. Over the weekend, Sens. Mark R. Warner (D-Virginia) and Mike Crapo (R-Idaho) reaffirmed support for the fund and its mission.

“Since 1994, the CDFI sector has grown to over 1,400 institutions, located in every state and territory in the nation – and leveraging at least $8 in private sector investment for every $1 in public funding received,” the pair said in a statement.

Congress set up the community development fund to support banks, credit unions and other financial firms that extend the bulk of their loans to poorer customers or distressed communities. The fund certifies financial institutions as “CDFIs” and manages a variety of grants and tax-credit programs authorized by Congress. The program draws relatively little taxpayer funding but is supported by private-sector investments to boost lending in economically hard-hit areas.

Friday’s directive, which also targeted other economic development and cultural organizations, required agency heads to report their compliance with the order to the White House budget office within seven days.

In January, Treasury Secretary Scott Bessent expressed support for the community lenders at his nomination hearing, saying they are vital to the strength of the U.S. financial system.

“I believe that the breadth of the U.S. financial services industry is what differentiates the U.S. economy from the rest of the world,” Bessent told Senate lawmakers. “The addition of these CDFIs into these underserved communities is very important.”

Since the executive order came out, Bessent has tried to reassure lawmakers that the program is safe and won’t be gutted, according to a Capitol Hill aide who spoke on the condition of anonymity to describe private discussions.

Bessent, in a written statement, said the administration “recognizes the important role” of the community lenders and the fund. “CDFIs are a key component of President Trump’s commitment to supporting Main Street America in the pursuit of job growth, wealth creation, and prosperity,” he said, adding that the Treasury Department “will provide a response to the Director of the OMB on this matter.”

Joe Quiroga, president of Texas National Bank, said shrinking the CDFI Fund could harm small businesses that depend on CDFIs for loans. His $960 million bank focuses on housing and small-business lending in the Rio Grande Valley, near the border with Mexico.

Darrin Williams, CEO of Southern Bancorp, a nearly $3 billion CDFI primarily serving Arkansas and Mississippi, said cuts to the program in Washington could hurt Main Street.

“We hope cuts to the federal bureaucracy are done in a way that doesn’t cause additional harm,” he said.