Fed Vice Chair Barr Seeks Legal Advice Against Potential Removal by Trump

By Pete Schroeder

Overview

Federal Reserve Vice Chair for Supervision Michael Barr has sought legal advice regarding his position amid potential attempts by President-elect Donald Trump to remove him, raising concerns about the central bank’s independence.

Background

Barr, appointed by President Joe Biden, has been consulting law firm Arnold & Porter in his personal capacity. This approach is customary since individual officials generally have legal standing in removal cases, not their agencies.

The Fed declined to comment on Barr’s situation, and Barr did not respond to requests for comment. His term expires in July 2026, and he intends to complete it, though further details on his legal discussions remain undisclosed.

Political Context

Barr’s actions follow concerns regarding Trump’s advisers seeking to exert influence over the Federal Reserve. This situation has alarmed officials and investors who advocate for the central bank’s independence in setting monetary policy.

Fed Chair Jerome Powell, previously appointed by Trump, indicated that he cannot be removed without cause, and Trump has stated he does not plan to dismiss Powell.

Legal and Regulatory Implications

The legal framework for the Federal Reserve permits presidential removal of Fed governors only for cause. However, it’s unclear if Trump could demote Barr from his Vice Chair for Supervision role. Barr has faced criticism for his stringent regulatory approach, notably related to the ‘Basel III Endgame’ capital rules, prompting discussions among Trump advisers about a potential dismissal despite legal uncertainties.

Barr’s initiatives have met considerable opposition from financial institutions, complicating the regulatory landscape. His future effectiveness may depend on collaboration with agencies influenced by Trump appointees, especially regarding upcoming regulations intended to manage risks within the banking sector.

Conclusion

There is no known precedent for a president removing a Fed official, yet tumultuous transitions at regulatory bodies are not uncommon in Trump’s administration, with past legal challenges occurring over leadership changes in agencies like the Consumer Financial Protection Bureau.