Federal Reserve Governors Michelle Bowman and Christopher Waller pose for a photo during a break during a monetary policy conference at Stanford University’s Hoover Institution, in Palo Alto, California, U.S., May 6, 2022. Photo taken on 6 May 2022.
Ann Saphir | Reuters
The early ones departure of the Federal Reserve’s top financial regulator will allow a more industry-friendly official to take his place, the latest benefit for U.S. banks riding a wave of post-election optimism.
Michael Barr, the Federal Reserve’s vice chairman for supervision, said Monday that he plans to leave his position next month to avoid a protracted legal battle with the Trump administration. weighed seeking his removal.
The announcement, a reversal of Barr’s last comments on this matter, will end his supervisory role approximately 18 months ahead of schedule. It also removes a potential obstacle to Donald Trump’s deregulation agenda.
Banks and other financial stocks were among the big winners after Trump’s election in November, amid speculation that softer regulation and more deal activity, including mergers, were on the way. Weeks after his victory, Trump selected hedge fund manager Scott Bessent as his pick for treasury secretary.
Trump has yet to make a choice for the three major banking regulators: the Federal Deposit Insurance Corp., Office of the Comptroller of the Monet and the Consumer Financial Protection Bureau.
Now that Barr is stepping down, a more accurate picture of banking regulation to come is emerging.
Trump is limited to choosing one of two Republican Fed governors as vice chairman of oversight: Michelle Bowman or Christopher Waller.
Waller declined to comment, while Bowman did not immediately respond to request for comment.
Bowman, whose name has already been on shortlists for possible positions in the Trump administration and is considered the frontrunner, has been one of the leading candidates critic of Barr’s attempt to force US 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 that was consistent with the original Basel Accord, yet fit the particularities of the U.S. banking system,” Bowman said in a November 2014 report. speech.
Bowman, a former community banker and bank commissioner in Kansas, said he could implement “industry-friendly reforms” around a number of pain points for banks. Alexandra Steinberg barragea former FDIC director and partner at Troutman Pepper Locke.
That includes what bank executives have called an opaque Fed stress test process, long lead times for merger approvals and what bankers have said are sometimes unfair confidential banking exams, Barrage said.
Easier ‘endgame’?
When it comes to the Basel Endgame, first announced in July 2023 before a watered-down proposal was released last year, it is now more likely that its final form will be much friendlier to the sector, than versions that would have forced big banks to do dozens withholding billions of dollars of capital.
Barr led the interagency effort to craft the sweeping Basel Endgame, the first version of which would have raised capital requirements for the world’s largest banks by about 19%. Now Barrage and others see a final version that is much less burdensome.
“Barr’s replacement could still work with the other agencies to propose a new B3 endgame rule, but we think such a proposal would be capital neutral across the industry,” Stifel analyst Brian Gardner said Monday in a note. “Bowman voted against the 2023 proposal, and we expect she would take any rewrite of B3 in a different direction.”
If lenders ultimately reject efforts to force them to hold more capital, that would allow them to boost share buybacks, among other possible uses for the money.
Bank stocks traded higher on Monday following Barr’s announcement, with the KBW Bank Index rising as much as 2.4% on the session. Citi Group And Morgan Stanleyboth of which made regulatory headlines last year, were among the biggest gainers of the day, each up more than 2%.
Notably, Barr will not step down from his role as one of the seven Fed governors, preserving Democrats’ current 4-3 lead on the Fed’s board, said Brian Graham, co-founder of the Klaros Group.
“Barr’s resignation as vice chairman while he remains governor is actually very smart,” Graham said. “It maintains the balance of power for votes on the board for about a year, and it limits the choices for his replacement to those currently on the board.”