The sudden decision to resign from the vice chairman of supervision of the Federal Reserve by Michael Barr has just confirmed what everyone has seen before: a full-blown showdown between Donald Trump and the Federal Reserve.

Barr, who intended to hold his position until July 2026, announced on Monday that he would resign next month - if not sooner.

Trump, who has wanted to take over the Fed's regulatory framework, now has a golden opportunity to reshape it. But don’t get too comfortable. Barr isn’t going anywhere. He plans to remain as Fed governor until 2032, ensuring he will have a voice in key decisions.

Trump and Barr are on a collision course

Trump and Barr have differing views on how financial regulations should operate. Barr is a thorn in the side of Wall Street and the cryptocurrency industry, pushing for stronger oversight and tighter rules. On the other hand, Trump believes in deregulation.

Even before Barr's resignation, tensions had flared. Trump did not like the current leadership of the Fed, although he decided not to fire Jerome Powell, whose term as chairman runs until May 2026. That temporary détente had calmed the markets for a while, but Barr's actions have now broken it.

He himself hinted at this issue in a statement to Bloomberg, saying that potential legal challenges to his role made it unrealistic to continue. He called it a "distraction" but conveniently avoided mentioning Trump by name.

The next step for the president may be to nominate Michelle Bowman, one of his appointees from 2018, to take over Barr's role.

Wall Street and cryptocurrency say 'good job'

The market didn't wait to react. Bank stocks surged immediately after Barr's resignation letter was made public. The SPDR S&P Bank ETF jumped over 1%, signaling relief on Wall Street. Investors see this as Trump's opportunity to bring in a more business-friendly and cryptocurrency-friendly figure, freeing them from the heavy hand of regulation hanging over them.

Barr's departure also temporarily halts several major regulatory projects, most notably the Basel project - a set of rules aimed at tightening oversight of the banking sector, leading to the infamous Operation Choke Point 2.0.

His policies are the main reason banks avoid engaging in cryptocurrency or providing custody services for crypto companies. The industry hated that, and with Barr's departure, this reform process is truly frozen.

The Vice Chairman in charge of supervision, established after the 2008 financial crisis, is designed to prevent another collapse of large financial institutions. Barr's tenure includes dealing with the fallout from the 2023 collapse of Silicon Valley Bank and other regional banks.

These crises forced the Fed to take emergency liquidity measures to prevent a broader collapse.