Fed’s Michael Barr clears way for gentler banking regulator

The early departure of the Federal Reserve’s top financial regulator allows for a more industry-friendly official to take his place, the latest boon for U.S. banks riding a wave of post-election optimism.

Federal Reserve Vice Chair for Supervision Michael Barr said Monday that he plans to step down from his role by next month to avoid a protracted legal battle with the Trump administration, which had weighed seeking his removal.

The announcement, a reversal from Barr’s previous comments on the matter, ends his supervisory role roughly 18 months earlier than planned. It also removes a possible impediment to Donald Trump‘s deregulatory agenda.

Banks and other financial stocks were among the big winners after the election of Trump in November on speculation that softer regulation and increased deal activity, including mergers, were on the way. Weeks after his victory, Trump selected hedge fund manager Scott Bessent as his choice for Treasury secretary.

Trump has yet to name picks for the three major bank regulatory agencies — the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau.

Now, with Barr’s resignation, a more precise image of incoming bank regulation is forming.

Trump is limited to picking one of two Republican Fed governors for vice chair of supervision: Michelle Bowman or Christopher Waller.

Waller declined to comment, while Bowman didn’t immediately respond to request for comment.

Bowman, whose name had already appeared on short lists for possible Trump administration roles and is considered the front-runner, has been a critic of Barr’s attempt to force American banks to hold more capital — a proposal known as the Basel III Endgame.

“The regulatory approach we took failed to consider or deliver a reasonable proposal, one aligned with the original Basel agreement yet suited to the particulars of the U.S. banking system,” Bowman said in a November speech.

Bowman, a former community banker and Kansas bank commissioner, could take on “industry-friendly reforms” around a number of sore spots for banks, according to Alexandra Steinberg Barrage, a former FDIC executive and partner at Troutman Pepper Locke.

That includes what bank executives have called an opaque Fed stress test process, long turnaround times for merger approvals and what bankers have said are sometimes unfair confidential bank exams, Barrage said.

When it comes to the Basel Endgame, first announced in July 2023 before a toned-down proposal was released last year, it’s now more likely that its ultimate form will be far gentler for the industry, versus versions that would’ve forced large banks to withhold tens of billions of dollars in…