The Fed's Barr paves the way for a more lenient banking regulator, resulting in another victory for Wall Street.

• Michael Barr, the Federal Reserve Vice Chair for Supervision, intends to resign from his position by the end of the month to avoid a prolonged legal conflict with the Trump administration.
• The announcement marks a change from Barr's previous stance on the issue and ends his supervisory role 18 months earlier than planned, removing a potential obstacle to Trump's deregulatory agenda.
• The Fed has given Trump the option to choose between Michelle Bowman and Christopher Waller as the vice chair of supervision.

The departure of the Federal Reserve's top financial regulator paves the way for a more industry-friendly official, benefiting U.S. banks during a period of post-election optimism.

Michael Barr, the Federal Reserve Vice Chair for Supervision, announced on Monday that he will resign from his position by next month to avoid a prolonged legal conflict with the Trump administration, which had considered removing him.

The announcement marks a change from Barr's previous stance on the issue and ends his supervisory role 18 months earlier than planned, removing a potential obstacle to Trump's deregulatory agenda.

After the election of Donald Trump in November, financial stocks, including banks, experienced gains on the expectation of softer regulation and increased deal activity, including mergers. Weeks later, Trump appointed hedge fund manager Scott Bessent as his nominee for Treasury Secretary.

The three major bank regulatory agencies, namely the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, still do not have nominees appointed by Trump.

With Barr's resignation, a clearer picture of incoming bank regulation is emerging.

The Fed has given Trump the option to choose between Michelle Bowman and Christopher Waller as the vice chair of supervision.

Neither Waller nor Bowman responded to requests for comment.

Bowman, who is a top contender for a role in the Trump administration and has been critical of Barr's plan to increase bank capital requirements, is known as the Basel III Endgame.

In a November speech, Bowman stated that the regulatory approach we adopted did not take into account or provide a reasonable proposal that was in line with the original Basel agreement but tailored to the specifics of the U.S. banking system.

According to Alexandra Steinberg Barrage, a former FDIC executive and partner at Troutman Pepper Locke, Bowman, a former community banker and Kansas bank commissioner, could implement "industry-friendly reforms" to address several problem areas for banks.

Barrage criticized the opaque Fed stress test process, long turnaround times for merger approvals, and sometimes unfair confidential bank exams, as bank executives and bankers have stated.

Easier 'Endgame'?

The Basel Endgame, initially announced in July 2023 and later toned down, is now expected to be much milder for the industry, with versions that would have required large banks to withhold tens of billions of dollars in capital being unlikely.

Barr spearheaded the interagency initiative to create the Basel Endgame, which initially aimed to increase capital requirements for the world's largest banks by approximately 19%. However, the final version is now viewed as significantly less burdensome by Barrage and others.

"Stifel analyst Brian Gardner stated on Monday that Barr's replacement could still collaborate with other agencies to propose a new B3 Endgame rule, but he believes such a proposal would be neutral to the industry. Gardner added that Bowman, who voted against the 2023 proposal, would likely lead any B3 rewrite in a different direction."

If lenders succeed in resisting efforts to increase their capital requirements, they may use the extra funds for share buybacks and other purposes.

On Monday, bank stocks traded higher, with the KBW Bank Index rising as much as 2.4%, and two companies that have faced regulatory scrutiny in the past year, each rising more than 2%.

According to Brian Graham, co-founder of Klaros Group, Barr is not resigning from his position as one of seven Fed governors, which maintains the current 4-3 advantage of Democrat-appointed members on the Fed board.

"Graham stated that Barr's decision to resign as vice chair while remaining a governor is a smart move. It maintains the board's power balance for a year or so and limits the options for his replacement to those already on the board."