Michael Barr to step down as top Wall Street regulator

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Michael Barr is stepping down as Wall Street’s top regulator but will stay on as a governor at the Federal Reserve, the US central bank announced on Monday.

Barr will vacate his role as vice-chair for supervision at the end of February, cutting short a four-year term that began in July 2022. He will remain as a governor until that term is up in January 2032, meaning there will be no new vacancy on the seven-member board of governors.

Barr said in a statement that he was stepping down over concerns that a “risk of a dispute over the position could be a distraction” to the Fed’s goal to safeguard the US financial system.

“In the current environment, I’ve determined that I would be more effective in serving the American people from my role as governor,” he said.

His decision comes just ahead of Donald Trump’s return to the White House. The president-elect has vowed to slash regulations in his second term, and his advisers were reportedly considering demoting Barr.

Since Barr is staying on as a Fed governor, Trump will have to select a new vice-chair for supervision from among the current group of governors. They include officials like Christopher Waller and Michelle Bowman, both of whom Trump selected for their jobs during his first term as president. Bowman in particular has emerged in recent years as a staunch opponent to many of the rule changes proposed by Barr.

The Fed on Monday said it would not make any “major rulemakings” until a successor is confirmed by the Senate.

Since Barr assumed the top regulatory role in the US government and pledged to impose more stringent rules on major lenders, the Fed has faced intense legal pressure from banking lobby groups. Some of those groups filed a lawsuit in December against the central bank over its framework for stress tests, which aim to identify vulnerabilities at specific organisations in times of economic or financial strain.

The Fed was already considering what it described as “significant changes” to the stress tests in order to reduce volatility around the results and make the process more transparent. Changes could include amending models that calculate hypothetical losses for banks, averaging results over two years to lessen the risk of large year-on-year swings, and allowing the public to comment on hypothetical scenarios each year before they are finalised.

Last year, Barr was forced to revise his landmark proposal to raise capital requirements on lenders such as JPMorgan Chase and Goldman Sachs. A bipartisan group of US lawmakers, chief executives at the biggest banks and lobbyists had launched a ferocious opposition campaign against the implementation of the so-called Basel III Endgame — the final rules tied to an international effort to shore up the sector in the wake of the 2008 financial crisis.

In September, Barr unveiled new proposals that would have roughly halved the increase in capital requirements to 9 per cent for the largest US banks, versus the 19 per cent initially floated.

Barr said in his resignation letter to US President Joe Biden that it had been an “honor and a privilege to serve as the Federal Reserve Board’s vice chair for supervision, and to work with colleagues to help maintain the stability and strength of the US financial system so that it can meet the needs of American families and businesses”.