The Federal Reserve's leading banking regulator, Michael Barr, has announced his resignation, effective from February 28.
This move comes ahead of the inauguration of President-elect Donald Trump, potentially averting a speculated clash between the two. Barr, who holds the formal title of vice chair for supervision, will continue to serve as a governor on the Fed board until 2026.
According to CNBC, there had been rumors that Trump might aim to replace Barr after assuming office on January 20. Barr's decision to step down will facilitate a smoother transition, particularly as it is believed that Trump prefers a more bank-friendly figure in the role.
Barr did not directly address the speculation about Trump's intentions to replace him. However, he stated, "the risk of a dispute over the position could be a distraction from our mission. In the current environment, I've determined that I would be more effective in serving the American people from my role as governor." He expressed his gratitude for the opportunity to serve as the Federal Reserve Board's vice chair for supervision, emphasizing his commitment to maintaining the stability and strength of the U.S. financial system.
Following the announcement, bank stocks experienced a surge. The SPDR S&P Bank exchange-traded fund, which monitors the industry's top performers, saw a gain of over 1%. The Trump transition team has yet to comment on the matter.
The Federal Reserve, in its announcement of Barr's resignation, stated that it will refrain from making significant decisions on rules and regulations until a successor is appointed. The bank has been working on a set of new rules, known as the Basel endgame, which has been widely criticized within the industry.
The role of vice chair for supervision was established in the aftermath of the 2008 financial crisis, which led to the collapse of several major Wall Street firms. During Barr's tenure, the industry faced a crisis in early 2023, resulting in the collapse of Silicon Valley Bank and a few others. This prompted the Federal Reserve to introduce a liquidity facility to prevent the crisis from escalating.
In the days leading up to Barr's resignation, there was increasing speculation that Trump might attempt to force him out of office. A report from Reuters in late December suggested that Barr was seeking legal advice on his options should the President-elect decide to take action. As the Federal Reserve is restricted to seven board members, Trump will have to select a replacement from the current group.
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