Michael Barr elected to
Barr said the self-demotion from vice chair for supervision to mere Fed governor was "painful" on a personal level but necessary to protect the institution. From a policy perspective, the move could have little impact on the Fed's
Along with his presidentially appointed and Senate-confirmed position as vice chair, Barr also leads the Fed Board of Governors' internal committee on supervision and regulation. By retaining his seat on the board, Barr is eligible to continue chairing that committee, at least until a new vice chair for supervision is installed.
Karen Petrou, managing partner of Federal Financial Analytics, said whether Fed Chair Jerome Powell allows Barr to helm the committee after he vacates the vice chair position on Feb. 28 will dictate the degree and speed of policy change at the Fed, particularly as it relates to supervision.
"If there is a new chair of the Fed committee on [supervision and regulation], things could change more quickly at the Fed," Petrou said. "If not, then not."
A Fed spokesperson said no decision has been made about Barr's role on the internal committee, noting that such decisions take time to hash out.
Before the vice chair for supervision was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 — and for years after the law went into effect — the chair of the supervision and regulation committee was tasked with bringing proposals before the board and overseeing the central bank's examination teams. Former Fed Gov. Dan Tarullo, often considered the prototype for the vice chair for supervision, enacted numerous reforms at the central bank from the position of supervision and regulation committee chair.
Should Barr keep chairing the committee, he could keep many of his same authorities while sparing himself from the undermining threat of litigation as well as the
During a Tuesday press conference at his golf course in Florida, President-elect Donald Trump told reporters he would announce his pick to replace Barr as vice chair for supervision soon but did not give any further details.
By keeping his board position, Barr also prevents the administration from appointing a new governor to fill the position of vice chair for supervision. David Zaring, a professor of legal studies and business ethics at the University of Pennsylvania's Wharton School, said Trump would likely be limited to the two remaining Fed appointments from his first term: Govs. Christopher Waller and Michelle Bowman.
"He's constrained on who he can choose. It's got to be Gov. Bowman or Gov. Waller, if he wants a Republican. That limits the flexibility of the president," Zaring said. "Waller is certainly a mainstream, typical Republican governor. Bowman, a bit less so, but she's got supervisory experience, so she may end up getting the job."
In an interview with American Banker, Barr said he has no opinion on who should succeed him as vice chair for supervision and did not factor the potential outcomes into his decision to step down.
Barr said his decision — which he made without knowing that the new administration would, in fact, try to remove him — was in the interest of shielding the Fed from any kind of legal conflict with the White House.
Barr said he discussed the matter with Powell and Fed General Counsel Mark Van De Wiede, and both pledged to support him in a potential legal showdown. Ultimately, Barr decided that potentially taking on such a fight was not worth the risk.
"I came to the conclusion that the likelihood of this being a political distraction for the Fed was very high and that, on balance, it made sense for me to step away from the position, rather than have it be a political distraction for the Fed," he said. "I thought I would do more to serve the public by stepping down from it, and I can be more effective as a governor, and I didn't want the Fed to be dragged into a dispute, which might make it less likely that we could serve the American public the way we want to do."
Derek Tang, CEO and co-founder of the Washington-based research firm Monetary Policy Analytics, noted that if the administration is set on a different candidate for vice chair for supervision, it could attempt to entice Bowman or Waller to vacate their seat early, possibly by offering a different government position. But, he said, the logistics of such an arrangement could get messy.
Tang added that by remaining on the board, Barr can still serve as a foil to regulatory efforts with which he disagrees. Barr could lead a bloc against interagency initiatives that would roll back agency oversight, Tang said, pointing to the success Bowman had in drumming up opposition to the Basel III endgame capital proposal and other interagency initiatives.
"The analogy here is slightly different because Barr would be dissenting from a position where he also might have the majority," Tang said. "He could bring along Governors [Lisa] Cook, [Adriana] Kugler, [Philip] Jefferson, possibly even Powell."
Barr declined to comment on whether he would, in his reduced capacity, serve as vocal opposition to regulatory proposals. He said he does not know if he will serve all seven years of his remaining term as governor, but for now he enjoys his non-regulatory pursuits at the institution.
"2032 is a long time from now, so I haven't made any decisions about the length of my term," he said. "I feel like I'm contributing on the board on monetary policy, on financial inclusion, on payments policy, on financial stability issues, broadly. I enjoy the job and I look forward to continuing to contribute."
Had he retained this vice chairmanship, Barr's ability to dictate the terms of interagency bank regulatory changes for the remainder of his term would have been limited, both by leadership changes at other agencies as well as divergent policy views within the Fed Board of Governors that complicate its
Rather than putting the finishing touches on a capital reproposal or finalizing a rule on long-term debt requirements — as he could have done had Vice President Kamala Harris won the presidency — Barr would have had to take such initiatives back to the drawing board with new heads of the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.
More likely, he would have had to choose between trying to negotiate down deregulatory proposals from the other agencies or simply being a roadblock to them. Any policies enacted or supervisory actions taken by the Fed unilaterally under Barr's leadership could be undone by an unfavorable court ruling, should the Justice Department sue for his removal.
Regardless of what happens with the Fed's vice chair for supervision, Petrou said changes to bank policy were inevitable under Trump. Just how drastic those reforms end up being will be determined by the people the White House chooses to lead the FDIC and the OCC.
"Interagency bank policy depends very much on who the next acting or confirmed comptroller is and the lineup at the FDIC," she said. "Without knowing that, I cannot forecast interagency policy, because there is significant potential under the Trump administration that the normally institutional, relatively non-partisan nature of bank regulation will not continue over the next four years."
Unlike some other analysts and advocates, Petrou does not see the current moment as a collapse of bank regulatory independence. She sees the vacancies at the FDIC and the OCC as anomalies, with FDIC Chair Martin Gruenberg having
As for Barr, she sees the vice chair for supervision as an inherently political position, one that should have never been — and will no longer — be held up to the same standard of independence as the Fed's monetary policy-setting authorities.
"The hallowed sanctity of independence has gotten confused with monetary policy independence, which misunderstands the historical rationale for political independence in supervision. It has erred far, far too much on the side of letting the agencies more or less alone, and clearly that's over — especially in the Trump administration, under recent Supreme Court decisions," she said. "But that's not all bad, because bank supervision has a lot to answer for over the last 20 years."
For his part, Barr said he did not factor in the precedent-setting nature of his decision to resign in the face of a potential dispute with the president.
"I'm not trying to set a precedent with this. I'm not trying to make a statement with it. I just really made a practical judgment about what I thought, in the current environment, would best preserve the Federal Reserve's ability to continue to serve the people without distraction. That was the only criteria I had," Barr said. "And I think that it was a tough judgment to make, a painful judgment in many ways, but I feel, having made the judgment, that it is the right judgment for the institution and for me."
