Trump 2.0 regulatory signal? The Vice Chairman of the Federal Reserve in charge of financial regulation will resign after Trump's inauguration
According to the Federal Reserve's statement, Barr's resignation will take effect no later than February 28, and he will continue to serve as a Federal Reserve Governor until the end of his term. The statement suggests that his resignation as Vice Chairman of Supervision more than a year early is to avoid potential legal disputes with the Trump administration. Media reports indicate that Barr's decision does not mean that Powell will also step down from the position of Federal Reserve Chairman early, but it casts a shadow over the prospects of implementing new banking regulations that increase capital requirements in the U.S
The signal for Trump 2.0 to deregulate may have arrived: Before Trump is sworn in as President of the United States later this month, the Federal Reserve officially announced that Michael Barr, the Vice Chairman in charge of financial regulation, will resign shortly after Trump takes office.
On Monday, January 6th, Eastern Time, the Federal Reserve's official website released a statement saying that Barr will step down from his role as Vice Chairman of Regulation, effective February 28, 2025, or earlier upon the confirmation of his successor. Barr will continue to serve as a member of the Federal Reserve Board. In other words, although Barr will no longer be the Vice Chairman of Regulation next month, he will continue to serve as a Federal Reserve Board member until his current term ends in January 2032.
Barr has served as the Vice Chairman of Financial Regulation at the Federal Reserve since July 19, 2022, a year and a half after Biden became President of the United States. The Federal Reserve's statement indicated that he has submitted his resignation to President Biden. The statement quoted Barr as saying that the position of Vice Chairman of Regulation was established after the outbreak of the global financial crisis to enhance the Federal Reserve's sense of responsibility, transparency, and accountability in regulating the financial system, and suggested that his resignation was to avoid potential legal disputes with the Trump administration.
The statement read that Barr stated:
"The risk of controversy surrounding the position of Vice Chairman of Regulation may distract us from our mission. In the current environment, I have decided to serve the American people more effectively as a Board member."
The Wall Street Journal reported that the Trump administration's leadership has criticized the Federal Reserve's aggressive stance on bank regulation, and Barr has been a major supporter of strengthening regulation. The differing positions have led to speculation that Trump may attempt to dismiss Barr upon taking office, while Barr may seek legal action to prevent this.
Over a month ago, Barr directly responded to the speculation regarding Trump's potential dismissal of him. During a hearing before the House Financial Services Committee in late November 2024, a Republican member asked Barr what he would do if Trump sought to dismiss him from his position as Vice Chairman of Regulation. Barr replied at the time that, as Federal Reserve Chairman Powell stated, Federal Reserve officials have fixed terms, and he plans to serve out his term.
According to Barr's statements at the time, he should have planned to continue serving as Vice Chairman of Regulation until July 2026. However, the Federal Reserve's statement on Monday indicates that Barr is resigning more than a year early. The Wall Street Journal cited sources saying that Barr's resignation decision does not imply that Powell may also resign from the position of Federal Reserve Chairman early.
The Federal Reserve's statement on Monday indicated that it does not intend to make any significant decisions regarding bank regulation until Barr's successor is confirmed. Barr's resignation means that Trump can nominate someone from the existing Federal Reserve Board to take over as the head of financial regulation, thus gaining influence over the Federal Reserve's financial regulation.
Bloomberg reported that Barr's departure further casts a shadow over the prospects for U.S. regulators to implement a landmark regulatory scheme—the U.S. version of the Basel III banking regulatory new rules. Wall Street Insight mentioned that the new banking regulatory proposal released by the Federal Reserve and other U.S. regulators in July 2023 requires banks with assets exceeding $100 billion to increase their capital by approximately 16%, with major banks like JPMorgan and Citigroup potentially facing about a 19% increase in capital The above plan aims to require large banks to hold more capital, providing a buffer against future losses and financial crises, and preventing bank failures and financial turmoil. Barr is a key figure in the negotiations related to this plan. Previously, media reported that after the plan was released in 2023, the banking industry launched one of the most intense lobbying efforts in history, opposing such high requirements on the banking sector.
In September 2024, it was reported that regulators agreed to a comprehensive revision of the proposed package of rules, with the new plan requiring large banks to only increase their capital by 9%. However, subsequent reports indicated that this relaxation of requirements faced opposition from several directors of the Federal Deposit Insurance Corporation (FDIC), with at least three of the five directors opposing it