U.S. banks for years talked freely and frequently about their diversity, equity and inclusion initiatives, saying they were pushing for change both inside their companies and in the communities they serve. They publicly committed to hiring more women and minorities. They set representation goals, including in upper management. They required a diverse slate of candidates for job openings. Externally, the big banks pledged billions of dollars to advance racial equity. They supported women and minority business owners by expanding access to credit. And they poured hundreds of millions of dollars of capital and deposits into minority banks, in an effort to shrink the nation’s racial wealth gap.
But the Trump administration’s recent onslaught against DEI policies and practices — including an executive order calling DEI “illegal” — has led the big banks to rethink their public stances. At minority depository institutions, the sudden changes are creating fear that big banks’ support, financial or otherwise, could diminish. Some in the minority bank world say the Trump administration’s posture and the related possibility of being sued over DEI programs are already having a chilling effect.
“There has been an observed slowdown since the election in terms of decision-making … for deposits and equity offerings,” said Carlos Naudon, the president and CEO of Ponce Bank, a $3 billion-asset minority bank in New York City whose board is majority Hispanic-American.
Naudon was one of the few people in the MDI sector who agreed to be interviewed for this article. Some others would only agree to speak on background or off the record, fearing retribution against their companies and the groups with which they associate. Several minority bank CEOs declined or did not respond to American Banker’s interview requests.
Naudon’s bank is one of 151 MDIs in the country and one of 38 MDIs that are also designated as community development financial institutions, or CDFIs. Since around 2020, when George Floyd’s murder set off months of racial unrest across the country, the bank has received about $150 million of deposits from larger banks, including State Street Corp., Naudon said.
Last year, Boston-based State Street placed a total of $100 million of low-cost deposits into eight MDIs and CDFIs as part of a program to reduce inequity in underserved communities. Some in the sector said they don’t expect big banks to make such investments in the near term. State Street did not respond before deadline to questions about whether it would maintain its deposits at MDIs and whether it would support MDIs in the future.
Naudon, who is also vice chair of the Community Development Bankers Association, a trade group for CDFIs, said his bank has not seen an outflow of big-bank deposits at this time. But among MDIs in general, “there’s a significant level of concern,” he said. While support for CDFIs appears to be strong among both Democrats and Republicans, “on the MDI side of the house, that’s where I think there’s a greater risk that the good that has been done gets undone, and I think that’s an area that we need to be very watchful to make sure we don’t go backwards.”
‘Illegal DEI discrimination and preferences’
Historically, MDIs and CDFIs, and Black-led banks in particular, have faced several obstacles, including undercapitalization, liquidity concerns, technology gaps and overall profitability challenges. But the civil unrest in 2020 ignited newfound momentum within the sector, as corporations, including big banks, looked for ways to help close the racial wealth gap. According to the Pew Research Center, in 2021 Asian households in the U.S. had a median net worth of $320,900, compared with $250,400 for white households, $48,700 for Hispanic households and $27,100 for Black households.
Many large businesses plowed equity capital into minority banks and CDFIs. The Treasury Department invested more than $8.57 billion in 175 MDIs and CDFIs, a move that was hailed as transformational. Later, as MDIs and CDFIs sought to leverage the capital they’d received, they received hundreds of millions of dollars in deposits from big banks and other businesses. The higher interest rate environment made it more difficult to attract and retain some deposits. But at the end of June 30, 2024, MDIs held a combined $284 billion of deposits, up 46.5% since 2019, according to data from the National Bankers Association, a minority-bank trade group.
Over the last five years or so, minority-led Ponce Bank has received about $150 million of deposits from larger banks, according to President and CEO Carlos Naudon.
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Even before President Donald Trump won election in November, the backlash against DEI in corporate America was growing. In August, the home-improvement chain Lowe’s said it would scale back some of its diversity policies. Walmart also took steps away from DEI, as did Jack Daniel’s, John Deere and Boeing. In January, the president signed an executive order requiring federal agencies to end all DEI-related programs and policies, and “encouraging” the private sector to end “illegal DEI discrimination and preferences” to comply with federal civil rights laws. Specifically, the executive order requires the attorney general, within 120 days of the Jan. 21 order and in consultation with “relevant agencies,” to submit a report containing “recommendations for enforcing federal civil rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.”
Will investments in MDIs go underground?
In response to the order and because they are federal contractors, each of the nation’s four biggest banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — have recently dropped, or watered down, public mentions of diversity and inclusion initiatives. Some of them also halted
DEI policies related to hiring and representation. In their recently filed 10-K reports, which sum up a firm’s financial performance for the prior year, some paragraphs about diversity and inclusion that appeared in the banks’ prior-year reports have been eliminated. In other cases, paragraphs were reworded, and charts were renamed. The changes in public messaging around DEI don’t mean that big banks will now halt further investment or withdraw the deposits they’ve placed at minority banks, several sources agreed. In fact, some of the banks say privately that their commitment to MDIs remains the same. One person close to the matter at one of the big banks said the company’s policies will remain in compliance with the law, but noted that there are no plans to make cuts to minority banks. Still, the banks may be reluctant to tout their work with MDIs, or to draw attention to the partnerships they have formed with minority banks, other sources said. “It’s early, but the concern is that [a lack of new deposits] could lead to some unintended consequences,” said a bank trade group representative who requested anonymity due to the sensitivity of the matter.
“If MDI banks can’t raise deposits because depositors are afraid, that means the banks can’t make loans,” the trade group representative said. “And if they can’t make loans in these communities, it could contribute to a lack of access to capital in markets served by these institutions, which could have a drag on the whole economy.”
CDFIs viewed as ‘very important’
CDFIs, which unlike MDIs are focused on geographic areas and are not affiliated with any particular race or ethnicity, may be in a better position when it comes to federal support, some observers say. That’s because political support for CDFIs is largely bipartisan. The CDFI Fund, which has made more than $1.4 billion in awards to community development organizations and financial institutions since its inception, is administered by the Treasury Department. During Treasury Secretary Scott Bessent’s confirmation hearing in January, Democratic Sen. Mark Warner asked him about how he views CDFIs and getting capital to underserved areas. “I believe the breadth of the U.S. financial services industry … differentiates the U.S. economy from the rest of the world, and I think the addition of these CDFIs into underserved communities is very important,” Bessent responded.
Naudon said CDFIs “have significant political support … on both sides of the aisle.”
In a statement to American Banker, Bank of America said: “We know community development financial institutions appreciate the relationships we have, and we expect them to continue.” Bank of America has said that it is the largest private investor in CDFIs, with more than $2 billion in loans, deposits, capital grants and equity investments in more than 250 CDFIs. A former senior regulatory official and partner in a major law firm who’s been involved in the MDI and CDFI sectors advised banks to pay attention to the administration’s executive order on DEI, consult with their legal counsel and expect regulatory agencies to provide related guidance. The attorney, who spoke on the condition of anonymity due to the sensitivity of the matter, said he is optimistic about CDFIs, while also noting that the “minority bank designation may be problematic” under the current administration. “In any event, there’s no reason to pull deposits or otherwise act in a way that’s detrimental to [MDIs] unless and until there’s specific regulatory guidance,” the attorney said.
Bracing for what comes next
The National Bankers Association is maintaining an optimistic tone about future financial support for MDIs, despite the repeal of corporate DEI policies. “The rollback of DEI language does not diminish the core value of partnerships that are rooted in shared goals, namely economic empowerment, innovation and job creation,” the minority-bank trade group said in a statement. “MDIs are continuing to work with partners who are committed to creating opportunity for all, and we believe that the strength of these partnerships lies in aligning on the long-term vision of economic growth.”
Many MDIs are now well-capitalized, thanks to the influx of capital in recent years, sources say. They hold more than $355 billion of assets, up 42.8% since 2019, according to the National Bankers Association. Several programs designed to provide capital to minority banks, including the Mission Drive Bank Fund, remain focused on deploying capital to those institutions.
Top banks eliminate or reduce DEI talk in annual reports
The Mission Driven Bank Fund, whose founding was encouraged by the FDIC, made deployments in 2024 and said in a recent press release that it will “continue to engage with and invest in mission-aligned banks” and that it “anticipates raising additional capital through May 2025.” At Ponce Bank, which was one of the largest MDI recipients of capital from the Treasury Department during the Biden administration, efforts to reel in more deposits continue. “It’s a dedicated, hard process, and yes, we have quote-unquote proposals at many institutions to bring us deposits, and we’re talking to them all the time,” Naudon said. “All I can say is that we’re well-received, but the process has slowed down.”
