Michael Barr to step down as the Fed’s head of banking supervision to avoid clash with Trump

The Federal Reserve’s top banking regulator will step down next month, paving the way for the president-elect Donald Trump to call for a replacement and head off a potential clash between the two.

The resignation of Michael Barr from the post, which is formally called vice president for supervision, takes effect from February 28, although he remains as a governor on the board of the Fed. His term as Fed governor runs until 2026.

There has been speculation that Trump might seek to replace Barr after taking office on January 20, the announcement would ease the transition amid speculation that the new president wants someone who is friendlier to the bank to take the role.

Although he did not specifically mention the rumors that Trump was trying to remove him, Barr said in a statement that “the risk of a dispute over the position could be a distraction from our mission. In the current environment, I determined that I would be more effective in serving the American people in my role as governor.”

“It has been an honor and a privilege to serve as the Federal Reserve Board’s vice chairman for oversight, and to work with colleagues to help maintain the stability and strength of the U.S. financial system so we can meet the needs of American families and businesses,” he said.

The bank’s shares rallied after the announcement. U SPDR S&P Bank The exchange-traded fund that tracks industry leaders gained more than 1%.

CNBC.com has reached out to Trump’s transition team for comment.

In a release announcing the decision, the Fed noted that it will not make any major decisions on rules and regulations until a successor is named. The bank revised a set of new rules, called Basel Endgame, which has been largely unpopular in the industry.

Because the Fed is limited to seven board members, Trump will have to name someone from the current group to the new position.

The position was created after the 2008 financial crisis that saw the implosion of many big names on Wall Street. Under Barr’s watch, the industry saw a crisis at the beginning of 2023 in which Silicon Valley Bank and a few other names collapsed, forcing the Fed to implement a liquidity facility to prevent problems they spread.

In recent days, speculation had swelled that Trump might seek to force Barr from office. A Reuters report in late December indicated that Barr was consulting with a law firm about his legal options should the president-elect make a move.