Community Banks Seen as Potential Victims of Trump’s Budget

President Donald Trump’s budget proposes cutting funds for Treasury Department and Housing and Urban Development programs, a move that drew criticism from lawmakers and advocacy groups worried about the potential impact on community banking.

The White House spending proposal for fiscal year 2018, released on Thursday, calls for a 13.2 percent reduction in discretionary spending at HUD, compared to this year’s enacted levels. The Treasury Department would receive a comparatively modest 4.1 percent decrease.

The administration proposed zeroing out grants by Treasury’s Community Development Financial Institutions Fund. For HUD, the budget calls for eliminating the Community Development Block Grant program because it “is not well-targeted to the poorest populations and has not demonstrated results.”

The budget outline introduced today does not directly address independent regulatory agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Instead of focusing on those issues, Democrats pounced on Trump’s proposed cuts to community development grant programs. Sen. Chris Van Hollen (D-Md.), a member of the Senate Banking Committee, told reporters that the budget is “great for Wall Street” because it does not touch sensitive issues for the financial services industry.

However, Van Hollen said, the budget could harm small lenders by cutting programs that he sees as instrumental to community development.

“It dramatically cuts programs that help community banks serve the small businesses throughout the United States of America,” Van Hollen said.

Norbert Michel, a research fellow on financial policy at the conservative Heritage Foundation, pushed back on that characterization in an interview, saying he agrees with the administration’s general position that the CDBG and CDFI grants have not been effective since their creation decades ago.

“The only reason you need CDFIs is because you have politicians who want to give out money to people,” Michel said. “If the only way [a] community bank could exist is to get grants from the federal government, then that bank shouldn’t exist. But I don’t believe that’s the case — that’s just not how most of them function.”

The Independent Community Bankers of America and the American Bankers Association said in a March 14 letter to leading appropriators on financial services that they’re “gravely concerned” about possible cuts to the CDFI fund.

The general cut to HUD spending also drew criticism from National Low Income Housing Coalition President Diane Yentel. In a Thursday statement, she said the budget would put “200,000 families and seniors at immediate risk of evictions and homelessness.”