Written by Pete Schroeder
WASHINGTON (Reuters) – Michael Barr, the Federal Reserve's top regulatory official, said he will step down from his position on February 28, in a surprise move that would avoid a potentially messy legal battle with President-elect Donald Trump, who is now free to replace him. With an official of his choice.
Barr said he will step down from his position as vice chairman of the central bank for supervision more than a year before his term ends in July 2026, but intends to keep his seat on the Federal Reserve Board of Governors.
Barr told Congress in November that he intended to complete his term, but has since concluded that doing so would risk a potentially damaging conflict with the incoming Trump administration, which The Washington Post reported in October had considered demoting Barr from his regulatory position.
“The risk of this being a serious distraction for the Fed and its ability to serve people is very high,” he told Reuters on Monday. “I didn't think that risk was worth it.”
Reuters had previously reported that Barr, a Democrat nominated by President Joe Biden, had sought legal advice from an outside law firm to explore his options if Trump tried to impeach him. Barr confirmed the Reuters report on Monday, adding that his lawyers and the Fed's general counsel agreed that he could eventually win the legal battle, but that it would be “very unpleasant.”
His early exit now paves the way for Trump, who will be sworn in on January 20, to appoint an entirely new slate of banking regulators and start working on a more industry-friendly agenda, although Barr's decision to remain governor limits Trump's powers. Instant options. Trump did not provide many details about regulating banks specifically, but he made reducing the rules a top priority as he sought to boost economic growth.
There are no open seats on the seven-member Federal Reserve Board until 2026, meaning Trump would need to either choose a new regulatory chief from the current list of governors, or move one of those officials to a separate position elsewhere to free up a spot.
The central bank said in a statement that it will not set key rules until a successor to the regulatory role is confirmed.
Fed Governor Michelle Bowman, a vocal critic of Barr's efforts to impose stricter rules on the banking sector, is widely viewed by lobbyists and analysts as the leading candidate to replace him. Christopher Waller, another Fed governor nominated by Trump in his first term, is considered another potential candidate by industry officials.
“Barr’s resignation is somewhat unexpected and positive for banks,” Brian Gardner, chief policy strategist in Washington at Stifel, wrote in a note, adding that it would allow Fed officials to immediately ease approvals for supervision and mergers and acquisitions, and may allow the central bank to delay Controversial increases in bank capital.
“While much of Trump's trade appears to have already been priced into banking stocks, we believe the potential for an accelerated timeline is still positive for the sector.”
Barr has pushed a set of tougher rules on the nation's largest banks, including so-called capital increases in Basel III. But the banking industry has lobbied intensely against his efforts and threatened to sue him over the draft rule, miring the measure in discord among officials. regulators on how to proceed. And with no bar in position, this base can be placed on the entire rack.
Aside from the Washington Post story, other media reports in recent months have suggested that Trump advisers have been looking for ways to increase the incoming White House's influence over the Fed, alarming officials and investors who argue that the central bank's independence is necessary so it can set monetary policy. correctly.
A spokesman for Trump's transition team did not immediately respond to a request for comment.
Fed Chairman Jerome Powell, who was appointed to his position as head of the central bank by Trump, only to later be criticized for his interest rate decisions, was seen as a target for the next president. But Powell said after the November 5 presidential election that Trump would not have the power to impeach him. Trump then said he had no intention of impeaching Powell.
The Fed Establishment Act states that the president may fire Fed governors only for cause, but it did not say whether Trump would have the ability to demote Barr from his position as deputy chairman for oversight. Powell had previously said that demoting Fed officials was not allowed under the law.
