Federal Reserve Governors Michelle Bowman and Christopher Waller pose for a photograph during a break at a monetary policy conference at the Hoover Institution at Stanford University in Palo Alto, California, USA, May 6, 2022. Photo taken May 6, 2022.
Anne Sapphire | Reuters
Early departure The Federal Reserve is allowing a more industry-friendly official to take his place as chief financial regulator, the latest boon for U.S. banks in a wave of post-election optimism.
Federal Reserve Vice Chairman for Supervision Michael Barr said Monday he plans to step down from his position by next month to avoid a protracted legal battle with the Trump administration. weighed seeking his removal.
Announcement, spread from Barr previous comments on this matter, is ending his leadership role approximately 18 months earlier than planned. It also removes possible obstacles to Donald Trump’s deregulatory agenda.
Banks and other financial companies were among the big winners after Trump’s election in November on speculation that looser regulation and increased deal activity, including mergers, were on the way. Weeks after his victory, Trump selected hedge fund manager Scott Bessent as his nominee for Treasury secretary.
Trump has not yet named a list of nominees for the three main banking regulators – the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau.
Now, after Barr’s resignation, a clearer picture of new banking regulation is emerging.
Trump limited himself to choosing one of two Republican Fed governors for the post of vice chairman for supervision: Michelle Bowman or Christopher Waller.
Waller declined to comment, and Bowman did not immediately respond to a request for comment.
Bowman, whose name has already appeared on shortlists for possible positions in the Trump administration and is considered the favorite, was critic on Barr’s attempt to force U.S. banks to hold more capital, a proposal known as the “Basel III Finale.”
“The regulatory approach we took did not allow us to consider or present a reasonable proposal that was consistent with the original Basel Accord but suited to the particularities of the U.S. banking system,” Bowman said in the November report. speech.
Bowman, a former local banker and Kansas bank commissioner, said he could implement “industry-friendly reforms” to address some of the banks’ problem areas. Alexandra Steinbergformer FDIC executive and partner at Troutman Pepper Locke.
That includes what bank executives called an opaque Fed. stress test process, lengthy merger approval times and what bankers say is sometimes an unfair confidential banking exam, Barrage said.
Easier than “Final”?
As for the Basel endgame, which was first announced in July 2023 before a watered-down proposal was published last year, it is now more likely that its final form will be much more lenient on the industry compared to versions that would have forced large banks hold tens of billions of dollars of capital.
Barr led an interagency effort to develop a sweeping Basel endgame, the initial 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 onerous.
“Barr’s replacement could still work with other agencies to propose a new B3 Endgame rule, but we think such a proposal would be capital neutral industry-wide,” Stifel analyst Brian Gardner said Monday. “Bowman voted against the 2023 proposal and we expect her to lead any rewrite of B3 in a different direction.”
If lenders eventually give up trying to force them to hold more capital, it would allow them to increase share repurchases, among other possible uses of the money.
Bank stocks traded higher Monday following Barr’s announcement, with the KBW Bank Index up 2.4% on the session. Citigroup And Morgan Stanleywhich drew attention to regulatory issues last year were among the day’s top gainers, each up more than 2%.
Notably, according to Klaros Group co-founder Brian Graham, Barr is not stepping down from his position as one of seven Fed governors, maintaining the current 4-3 advantage of Democratic appointees on the Fed board.
“Barr’s resignation as vice chairman while still being governor is actually very smart,” Graham said. “He maintains the balance of voting power on the board for a year or so and limits the choice of his replacement to those currently serving on the board.”