Signals of Trump's 2.0 approach to regulation may have arrived: Shortly before Trump takes office as President of the United States later this month, the Federal Reserve announced that Barr, the Vice Chairman for Financial Supervision, will resign shortly after Trump takes office.
On January 6, 2024, Monday Eastern Time, the Federal Reserve's official website released a statement saying Barr will step down from the position of Vice Chairman for Supervision, effective February 28, 2025, or earlier upon confirmation of his successor. Barr will continue to serve as a Federal Reserve Governor. In other words, although Barr will no longer serve as Vice Chairman for Supervision next month, he will continue to serve as a Federal Reserve Governor until his current term ends in January 2032.
Barr has served as Vice Chairman for Supervision of the Federal Reserve since July 19, 2022, a year and a half after Biden took office as President of the United States. The Federal Reserve's statement says he has submitted his resignation to President Biden. The statement quotes Barr as saying that the position of Vice Chairman for Supervision 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 suggests that his resignation is to avoid potential legal disputes with the Trump administration.
The statement read that Barr said:
The ‘risk of controversy surrounding the position of Vice Chairman for Supervision may distract us from our mission. In the current environment, I have decided to serve the American people more effectively as a Governor.’
The Wall Street Journal reported that the Trump administration has criticized the Federal Reserve's aggressive stance on banking regulation, and Barr has been a major supporter of strengthening regulation. The differing positions have led to speculation that Trump may attempt to remove Barr after taking office, while Barr may seek legal action to prevent this.
Over a month ago, Barr directly responded to the speculation about Trump's possible removal of Barr from his position as Vice Chairman for Supervision. During a hearing of the U.S. House Financial Services Committee in late November 2024, a Republican member asked Barr what he would do if Trump sought to remove him from his position as Vice Chairman for Supervision. Barr replied at the time that, as Federal Reserve Chairman Powell said, Federal Reserve officials have fixed terms, and he plans to serve out this term.
According to Barr at the time, he was supposed to plan to continue serving as Vice Chairman for Supervision until July 2026. The Federal Reserve's statement on Monday means that Barr has resigned more than a year early. The Wall Street Journal cited sources saying that Barr's resignation decision does not mean that Powell may also step down as Chairman of the Federal Reserve early.
The Federal Reserve's statement on Monday said it does not intend to make any significant decisions regarding banking regulation until Barr's successor is confirmed. Barr's resignation means that Trump can nominate someone from the existing Federal Reserve Governors to take on the role of financial regulatory head during his term, thus gaining influence over the Federal Reserve's financial regulation.
Bloomberg reports that Barr's departure further casts a shadow over the prospects for U.S. regulators to implement a landmark regulatory framework—the U.S. version of the Basel III banking regulatory new rules. Wall Street Journal previously mentioned that the banking regulatory new rules proposed by the Federal Reserve and other U.S. regulators in July 2023 require banks with assets exceeding $100 billion to increase their capital by approximately 16%, with eight major banks including JPMorgan Chase and Citibank potentially facing a capital increase of about 19%.
The aforementioned plan aims to require large banks to hold more capital, thereby providing a buffer against future losses and financial crises, preventing bank failures and financial crises. Barr was a key figure in the negotiations related to this plan. Media reports indicated that after the plan was unveiled in 2023, the banking sector launched one of the most intense lobbying efforts in history to oppose such high requirements on the banking industry.
Reports in September 2024 indicated that regulators agreed to a comprehensive revision of the proposed package of rules, which will require large banks to increase their capital by only 9%. However, subsequent reports indicated that this easing of requirements was opposed by several directors of the Federal Deposit Insurance Corporation (FDIC), with at least three of the five directors opposing it.