WASHINGTON – Federal Reserve Vice Chair for Supervision Michael Barr announced his resignation next month, a move aimed at sidestepping potential friction with the incoming Trump administration and Senate Republicans. Barr's departure is effective February 28th, or sooner if a successor is confirmed. Crucially, he will remain on the Federal Reserve Board of Governors.
Barr's resignation follows his controversial proposal for stricter regulations on large U.S. banks. These regulations, which aimed to significantly increase capital reserves, faced fierce opposition from major financial institutions like JPMorgan Chase, and were heavily criticized by Senate Republicans. The proposed rules were a departure from prior, more relaxed standards.
Senator Tim Scott, a key figure in the Senate Banking Committee, criticized Barr's proposal, calling it "disastrous" and claiming it would hinder lending and weaken the economy. Scott's comments highlight the political tension surrounding the regulations. In contrast, prior Trump appointees had eased regulations for smaller banks.
Prior to Barr's announcement, reports surfaced suggesting potential efforts by the incoming Trump administration to remove or demoted him. However, Federal Reserve Chairman Jerome Powell publicly stated that the president lacked the authority to do so.
Barr's resignation strategy limits the incoming administration's options for immediate replacement. The Federal Reserve Board is currently fully staffed, meaning any immediate changes would require appointing a current governor to the vice chair position, or waiting until a new governor's term commences. This strategy could affect upcoming policy initiatives, particularly banking regulations.
"The risk of a dispute over the position could be a distraction from our mission," Barr stated in a Fed release, emphasizing his decision to remain as a governor, maintaining the focus on serving the American people.
Barr's tenure has been marked by the 2023 banking crisis, including the failure of Silicon Valley Bank. He oversaw a report that attributed the failures, partially, to inadequate regulations. In response, Barr proposed tightening regulations, especially for banks with substantial assets. However, the proposed regulations faced staunch resistance from the banking industry, eventually prompting a revision by the Fed under Chairman Powell.
The Federal Reserve, in its statement, emphasized that no major rulemaking will be pursued until a successor for the vice chair position is confirmed. This further underscores the impact of the resignation on the regulatory agenda.
