Fed’s top bank cop to step down, averting potential clash with Trump

The Federal Reserve’s top regulatory official, Michael Barr, announced Monday that he will step down in the coming weeks, averting a possible showdown with President-elect Donald Trump, whose allies had floated plans to remove him.

Barr, who has served as the Fed’s vice chair for supervision since 2022, said he would resign from that role by Feb. 28 or earlier if his successor is confirmed. He said he will continue to serve as a member of the Federal Reserve’s board.

Barr’s resignation clears the way for the Trump administration to move quickly to scale back and reshape federal regulation and supervision of banks. His decision to step aside also marks the latest flashpoint over the independence of the Fed as Trump returns to office.

Barr’s term as vice chair for supervision had been set to run until 2026. But some Republicans and Trump supporters had discussed trying to demote him so the incoming president could more easily enact his plans for financial oversight — though it’s unclear whether he would have the authority to do so.

“I strongly value the independence of the Fed,” Barr said in an interview. This was “a tough decision, in many ways, a painful decision to make.”

“I was worried that the risk of a dispute over the position would end up being a political distraction for the Federal Reserve and for me, and that that would end up detracting from our ability to serve our mission,” Barr said.

Stepping down “best preserves the ability of the Fed to do its job,” he added. “I understand that there can be views on both sides.”

The Fed’s general counsel and Barr’s outside private counsel, Arnold & Porter, both independently concluded that a president lacks the power to remove him from his role, he said.

“On the legal merits, we would have won,” Barr said. “The issue is really the cost along the way.”

Barr said he didn’t intend for his resignation to create a precedent that the top regulatory job at the Fed should switch whenever a new president comes into power. “I did this for the particular facts and circumstances that we have here,” Barr said. “I’m not trying to make a broader statement about what should happen in the future.”

Trump’s transition team “did not ask me to step down,” Barr said. A Trump transition spokesperson did not respond to a request for comment.

If Trump intends to fill the regulatory role this year, he would have to choose from one of the Fed’s current governors — or tap one of them for another role outside the central bank — as all seven board seats are filled and the first vacancy is not until January 2026.

The most likely choice from that group is Michelle Bowman, a former community banker who previously served as the top bank regulator in Kansas. Trump could also select Christopher Waller, who has at times criticized Barr’s regulatory proposals, though he has been a more prominent voice on matters of interest rate policy.

Both Bowman and Waller were appointed by Trump during his first term.

Barr is only the second person to have held the job of vice chair for supervision since it was created by Congress in the wake of the 2008 financial crisis.

During his tenure, he oversaw the supervision and regulation of banks during the string of regional bank failures in the spring of 2023. He also frequently sparred with banking industry officials and congressional Republicans over his regulatory agenda, which included a push to increase capital requirements on the nation’s largest banks.

That regulatory agenda is now on pause, the Fed said. The central bank said in a statement that it “does not intend to take up any major rulemaking until a vice chair for supervision success is confirmed.”

Trump, who has repeatedly said he should be able to exert greater influence over the central bank, said in December that he had no plans to try to fire Fed Chair Jerome Powell. Powell has said he doesn’t think Trump has the power to dismiss him.

Trump’s pick for Treasury secretary, Scott Bessent, previously floated the idea of naming a shadow Fed chair to sidestep Powell. Bessent has since backed away from that idea and told reporters last month he supported Trump’s position that Powell should serve out his term as scheduled. But Barr’s position as the top banking regulator had remained an open question.

After the November election, Barr maintained publicly that he planned to serve out his full term in office even if Trump tried to get him to leave. “We serve fixed terms of office, and I intend to serve my fixed term of office,” Barr told lawmakers at a House hearing on Nov. 20.

But that changed when Barr made his decision to step aside late last week. “I had a couple weeks over the holiday break to hang out with my wife and children and just think deeply about this,” he said in the interview.

Barr also spoke with Powell, both before and after he finalized his decision. Powell “made it clear he would support me whatever my choice was,” Barr said.

Barr will remain on the Fed board where his term runs until January 2032. “I haven’t made a decision about how long I’m going to stay on the board,” he said, adding that he planned to return to teaching at the University of Michigan whenever he steps down from the board.

“The board has lots of important responsibilities that I feel I can add value to,” he said, citing monetary policy, payment systems, financial inclusion, consumer protection, community development, and financial stability. “As long as I feel like I’m doing that and contributing, I’ll stay.”

Congressional Republicans, who have sparred with Barr for the past two years, cheered Barr’s plans to depart as the Fed’s regulatory chief.

Sen. Tim Scott, the incoming chair of the Senate Banking Committee, called Barr’s agenda “disastrous” and said he would “work with President Trump to ensure we have responsible financial regulators at the helm.”

“The writing was on the wall for Michael Barr,” said Sen. Bill Hagerty (R-Tenn.), a close Trump ally and member of the Senate Banking Committee. “It was entirely appropriate that he stepped down. I only wish it happened years sooner.”

Sen. John Kennedy (R-La.), another member of the Banking Committee, said Barr “made a wise decision” in resigning. “Had the president decided to fire him and Mr. Barr resisted it, it would have been a real distraction,” Kennedy said.

Rep. French Hill, the incoming chair of the House Financial Services Committee, said he hoped Trump’s pick for Barr’s successor would be “committed to tailoring bank regulatory policies and implementing a balanced approach to prudential supervision.”

Fellow Biden-era regulator Michael Hsu, the acting comptroller of the currency, meanwhile, praised Barr as a “fantastic collaboration partner” in an interview. “He’s been a great person to work with.”

Eleanor Mueller and Jasper Goodman contributed to this report.