Washington (AP) – Michael Barr, the Federal Reserve's vice chair for supervision, has announced his resignation from the regulatory role effective February 28, 2025. This move is perceived as a strategic retreat to avoid potential conflict with the upcoming Trump administration and Republican leaders in the Senate.

Barr, who has served in this capacity since June 2022, intends to remain on the Fed's Board of Governors until his term expires in 2032. His departure comes amid escalating criticism over his oversight of proposed regulations designed to enhance financial safeguards for major banks. Those recommendations, including significant increases to the financial reserves that banks must maintain, faced harsh backlash from industry leaders and Republican senators who labeled them as "disastrous" for the economy (AP News).

Senator Tim Scott (R-S.C.), poised to lead the Senate Banking Committee, criticized Barr's approach and expressed readiness to partner with President Trump in restructuring the regulatory landscape. By stepping down as vice chair but retaining his position on the board, Barr has diminished Trump's ability to swiftly influence Fed leadership, given that all current governors’ positions are filled until at least 2026.

In his announcement, Barr acknowledged that the impending "risk of a dispute" over his position could undermine the Fed's essential mission. He stated, “In the current environment, I’ve determined that I would be more effective in serving the American people from my role as governor” (Reuters).

Barr's resignation seems to have cleared a pathway for Trump to appoint a successor aligned with less stringent regulations, lending weight to concerns over the potential politicization of the Federal Reserve. Analysts view Fed Governor Michelle Bowman, known for her opposition to Barr's regulatory measures, as a leading candidate to replace him. This transition occurs in the wake of the spring 2023 financial turmoil sparked by the Silicon Valley Bank failure, which Barr partly attributed to lax rules and insufficient capital reserves (NY Times, LA Times).

With Barr's exit, the Federal Reserve stated that no major rulemaking initiatives will be undertaken until a new vice chair for supervision has been confirmed, signaling a potential pause in attempts to enforce tighter bank regulations (Reuters).