Barr to Step Down as Fed Vice Chair; Bank Stocks Poised for Gains in Trump 2.0

Moomoo News Global wrote a column · Jan 7 21:58

The Federal Reserve announced Monday that Michael Barr, the Fed's top banking regulator, will step down from his role as Vice Chair for Supervision on February 28. However, Barr will remain a Fed governor, continuing his term until 2026.

Following the announcement, bank stocks broadly gained, with $Citigroup (C.US)$ and $Morgan Stanley (MS.US)$ rising more than 2%, and regional banks $Synovus Financial (SNV.US)$ and $East West Bancorp (EWBC.US)$ climbing over 1.5%.

Barr to Step Down as Fed Vice Chair; Bank Stocks Poised for Gains in Trump 2.0

Barr has been a key advocate for stronger regulation, pushing for more stringent rules for the largest U.S. banks, including the so-called Basel III Endgame. In July 2023, the Fed and other U.S. regulators proposed new bank rules requiring lenders with over $100 billion in assets to increase their capital by about 16%, which could mean a 19% rise for several large banks.

The proposal aims to ensure big banks hold more capital to buffer against future losses and financial crises, preventing bank failures. However, it sparked protests from several Wall Street firms. In September, Barr unveiled proposals reducing the initial 19% capital increase for top banks to about 9%.

With Barr stepping down, these regulations could be shelved entirely. Stifel Chief Washington Policy Strategist Brian Gardner wrote in a report that Barr's resignation was somewhat unexpected and beneficial for the banking sector. He added that it would allow Fed officials to relax supervision and merger approvals and might lead the central bank to pause the contentious capital increase. Our earlier article Trump Could Make M&A Great Again, Key Stocks for Gains highlighted potential benefits for investment banks amid a merger wave.

As the Fed board is limited to seven members, President Trump will need to appoint a current governor to fill the vacancy.

Fed Governor Michelle Bowman, who has criticized Barr's stricter rules approach, is widely seen as the leading candidate to succeed him. Another potential candidate is Christopher Waller, a Fed governor nominated during Trump's first term.

With Barr's resignation, the U.S. banking sector appears to have secured a concession from regulators. As Trump's January 20 inauguration approaches, his policy emphasis on deregulation could make the banking sector a primary beneficiary during his term.