Barr Resigns as Fed’s Regulatory Chief

By Pete Schroeder

WASHINGTON (Reuters) – Michael Barr, the Federal Reserve’s top regulatory cop, announced he will step down on February 28 in a surprising move, averting a potential legal conflict with President-elect Donald Trump. This resignation allows Trump to appoint a new official of his choosing.

Barr, who has served as the central bank’s vice chair for supervision, decided to resign over a year before his term was supposed to expire in July 2026, but he plans to keep his position on the Fed’s Board of Governors.

Previously, Barr indicated his intent to complete his term but changed his mind to avoid possible tensions with Trump’s administration, which had contemplated demoting him from his regulatory position. “The risk of that being a serious distraction to the Federal Reserve and its ability to serve the people was very high,” Barr stated.

Barr, nominated by President Joe Biden, explored legal options amid their considerations to remove him. He acknowledged that while he might win a legal battle, the experience would be “deeply unpleasant.” His departure opens the way for Trump to reshape banking regulations, despite the limitation of available seats on the Fed board until 2026.

The central bank announced it would not undertake major rulemaking until a successor to Barr is confirmed. Speculations suggest Fed Governor Michelle Bowman, known for opposing Barr’s stricter regulatory stance, could be a leading candidate for replacement. Another possibility is Christopher Waller, appointed during Trump’s first term.

Barr’s resignation is seen positively for banks, as it may lead to an easing of supervision and could halt contentious proposals like capital hikes. While the effects of Trump’s regulatory agenda are partially reflected in bank stocks, ongoing changes could spur positive developments for the sector.

Barr advanced strict rules for major banks, including Basel III Endgame capital hikes, which faced heavy resistance from the banking industry. His exit could lead to the shelving of this measure altogether.

Reports have emerged suggesting Trump’s team seeks to enhance their influence over the Fed, raising concerns regarding the central bank’s independence critical for effective monetary policy.

A spokesperson for Trump’s transition team did not immediately comment.

Fed Chair Jerome Powell, who was appointed by Trump and later criticized, is not expected to be removed by the incoming president as per Powell’s earlier statements. The law allows the president to dismiss Fed governors only for cause but is unclear regarding the authority to demote them.