Michael Barr Resigns from Federal Reserve to Avoid Political Conflict with Trump Administration

Man speaking at podium with American flags behind.

Federal Reserve’s top banking regulator Michael Barr resigns to avoid potential conflict with theTrump administration, leaving regulatory initiatives in limbo.

At a Glance

Michael Barr, Fed Vice Chair for Supervision, announces resignation effective February 28
Barr will remain on Fed’s Board of Governors until 2032
Resignation aims to avoid potential legal battle with incoming Trump administration
Major regulatory initiatives, including Basel III endgame proposal, are now on hold
Banking industry views Barr’s departure as potentially positive for their interests

Barr Steps Down to Preserve Fed’s Independence

Michael Barr, the Federal Reserve’s Vice Chair for Supervision, has announced his resignation from the top regulatory post, effective February 28, 2025, or earlier if a successor is confirmed. This move comes as a preemptive measure to avoid potential conflicts with the incoming Trump administration, highlighting the delicate balance between political transitions and the Fed’s independence.

Barr’s decision to step down from his leadership role while retaining his position on the Fed’s Board of Governors until 2032 is a strategic move. It limits the Trump administration’s ability to immediately replace him while ensuring continuity in the Fed’s overall governance structure.

Michael S. Barr will step down as Fed vice chair https://t.co/BBXKwb0ghG

— HousingWire (@HousingWire) January 6, 2025

Regulatory Initiatives on Hold

Barr’s departure has significant implications for the banking industry and ongoing regulatory efforts. During his tenure, Barr proposed new rules for large U.S. banks to increase financial reserves, a move that faced opposition from major financial firms and Senate Republicans. The Federal Reserve has now stated it will not pursue major rulemakings until a new vice chair for supervision is confirmed.

“The risk of a dispute over the position could be a distraction from our mission,” Barr said in a statement from the Fed. “In the current environment, I’ve determined that I would be more effective in serving the American people from my role as governor.”

One of the most significant regulatory initiatives now in limbo is the Basel III endgame proposal, which would have increased capital requirements for systemically important banks by 21% and potentially raised risk asset weights by 75%. The banking industry had criticized these proposals as too stringent and lacking real-world impact assessments.

.@SenatorTimScott released the following statement on Michael Barr’s announcement he will step down as the Federal Reserve Board Vice Chair for Supervision: pic.twitter.com/aSaFGl4V4n

— U.S. Senate Banking Committee GOP (@BankingGOP) January 6, 2025

Political and Legal Implications

Barr’s resignation comes amid reports that the Trump administration might attempt to fire or demote him. However, Fed Chair Jerome Powell has stated that a president lacks the legal authority to do so. The legal question revolves around whether an incoming president can remove someone from a Senate-confirmed position at an independent agency.

“Michael Barr has failed to meet the responsibilities of his position,” Scott said in a statement. “I stand ready to work with President Trump to ensure we have responsible financial regulators at the helm.”

While Barr believes he would win in court, he decided that such a fight would distract from the Fed’s mission. His early exit effectively halts major regulatory initiatives, with the Fed pausing significant rulemaking until a new vice-chair for supervision is appointed.

Looking Ahead

The resignation signals a potential shift in the regulatory landscape as the U.S. anticipates a second Trump administration. President-elect Trump can only appoint a current governor to the top regulatory position or wait for a vacancy. Governor Michelle Bowman, a Republican appointee favoring less stringent regulations, is considered a potential replacement.

“If there was any doubt, the 2023 Basel III Endgame proposal is dead” said Brian Gardner.

Barr’s departure is viewed by some as a positive development for banks, potentially allowing more capital for stock buybacks, dividends, and lending. However, the pause in regulatory action also leaves uncertainty in both traditional banking and emerging financial technologies sectors.