Michael Barr will step down as Fed Vice Chairman for Supervision by February 28, or sooner if President-elect Donald J. Trump appoints a replacement, the Federal Reserve announced Monday.
Mr. Barr will continue to serve on the central bank’s board of directors. But Barr said in an interview that his decision to step down as vice chairman was aimed at avoiding a lengthy legal battle with Trump, who he believes could harm the central bank.
Some Trump administration officials wanted to fire Barr before his term as vice chairman expired, citing the sensitivity of the matter, people familiar with the matter said.
That could lead to a lengthy and costly legal battle over whether the president-elect has the authority to remove someone from a Senate-confirmed position in an independent agency.
Some financial regulation experts question why Mr. Barr and the Fed itself would allow political upheaval to influence someone who played such a powerful role. Federal Reserve Chairman Jerome H. Powell has made it clear that the Fed is independent from the White House and its decisions are not influenced by politics. Mr. Powell has also argued that Mr. Trump does not have the legal authority to remove him as Fed chairman, a claim the Senate has acknowledged.
“We were surprised by Barr’s announcement because we expected him to resist Republican calls for removal and insist he would protect the Fed’s independence,” Ian Katz, managing director at Capital Alpha, said in an email. Because I was doing it,” he said.
Barr said he and his lawyers believed he would prevail in court if Trump tried to remove him from office. But he concluded that this fight was not worth fighting because it could harm the Fed.
“If it comes to the merits, I would win,” Barr said. The bigger question, he said, is: “Do I want to spend the next few years fighting this? Is that good for the Fed?” And I decided, no, that would be bad for the Fed and would seriously hinder our ability to fulfill our mission. ”
Barr said the decision was not easy. “The problem I worked on was a difficult problem and, in many ways, a difficult decision.”
His resignation effectively freezes the bank’s regulatory actions until Mr. Trump appoints someone to the vice chairman position. In announcing his move, the central bank said: “The board does not intend to undertake any material rulemaking until a replacement vice chair for supervision has been confirmed.”
The combination of Barr’s decision to resign and the suspension is viewed by some financial regulation experts as particularly problematic.
“Historically, the Fed has fiercely guarded its independence,” said Aaron Klein, Miriam K. Carliner Chair and senior fellow in economic studies at the Brookings Institution. “I find it strange that the Fed not only appears to tacitly support Barr’s decision, but also goes further and announces a moratorium on rulemaking.”
Klein noted that if Trump chooses not to nominate anyone for more than a year, he could effectively chill bank rulemaking indefinitely.
Dennis Kelleher, president, CEO and co-founder of Better Markets, a nonprofit organization that advocates for stronger financial regulation, called Barr’s decision “shocking” and said it is important to keep financial institutions safe and sound. He said it would impede the Fed’s role as a regulator of gender equality. system.
“His baseless capitulation to deregulatory zealots will actually destroy that mission faster and more thoroughly than any controversy over that position,” he said.
Barr’s move comes after a checkered tenure in charge of regulating and supervising the nation’s largest banks. Mr. Barr oversaw an effort to rewrite financial rules that increased the amount of capital banks had to set aside.
The review will require large banks to increase their capital cushions (cash and other easily accessible assets that can be used to absorb losses), which they believe will enable them to withstand periods of severe disruption. he said.
The proposal, and Mr. Barr, immediately came under attack from a wide range of groups, including the banking industry, members of Congress, and even some of his Fed colleagues. Two of the seven Fed board members, all appointed by Trump, voted against the rule.
Barr ultimately watered down the proposal in September after acknowledging the pushback.
“There are ample opportunities in life to learn and relearn the lesson of humility,” Barr said at an event that month.
Although Trump has not announced plans to seek to replace Barr, the president-elect has made clear he intends to take an industry-friendly stance toward banks, echoing the approach of his first-term administration. are. Mr. Trump’s vice chairman for oversight, Randall K. Quarles, worked to loosen banking supervision during his tenure.
Even before Mr. Basel announced his decision to step down, there was widespread speculation that the bank proposal, known as Basel III Final, would not receive final approval from the Trump administration.
The changes would require joint consent from the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. Trump has the opportunity to nominate the FDIC and OCC directors, but he has not yet announced who he will nominate.
South Carolina Republican Sen. Tim Scott, who chairs the powerful Senate Banking Committee, welcomed Barr’s decision to resign, citing Basel III rules and the collapse of Silicon Valley banks and other regional companies in spring 2023. did.
“From his supervisory failures during the spring 2023 bank failure to his disastrous proposals at the end of Basel III, Michael Barr has not lived up to the responsibilities of his position,” Scott said in a statement. “We stand ready to work with President Trump to ensure responsible financial regulators are at the helm.”
