The Federal Reserve’s chief banking regulator Michael Barr has announced his resignation as vice-chair for supervision, creating fresh speculation over US financial regulation as Donald Trump prepares to return to the White House.
Barr, who will step down on February 28 while retaining his position on the Fed’s Board of Governors, cited concerns that potential conflicts could impede the central bank’s regulatory mission. His early departure comes amid an ambitious drive to strengthen capital requirements for the largest US banks.
Since his appointment in 2022, Barr has championed stricter banking rules, most notably through the contentious Basel III endgame proposal, which would require major US lenders to maintain larger capital buffers against potential losses. While he had recently signalled openness to scaling back these requirements following industry pushback, his departure might altogether end prospects for even a moderated version of the reforms.
Large US banks faced capital requirements increases under Basel III Endgame reforms, with systemically important banks (assets over US$100 billion) originally requiring 21% more capital. The trading book review could have raised risk assets’ weights in their balance sheet by 75%, potentially squeezing market liquidity and raising client costs.
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“If there was any doubt, the 2023 Basel III Endgame proposal is dead,” said Brian Gardner, chief Washington policy strategist at Stifel. He characterised Barr’s exit as “positive for banks,” suggesting the move could free up capital for stock buybacks, dividends and lending activity.
The banking industry had criticised the Basel III proposals as overly stringent and lacking real-world modelling to assess their impact. The timing of Barr’s exit, more than a year before his term was due to expire, effectively puts major regulatory initiatives on hold. The Fed has indicated it will pause significant rulemaking until a new vice-chair for supervision is confirmed.
The resignation marks another potential shift in the regulatory landscape as the US prepares for its second Trump administration, with implications for both traditional banking and emerging financial technologies.
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