The Fed’s Michael Barr is resigning as vice chair for supervision. Who, you say? And so what? The Fed has a chair, Jerome Powell but has two vice chairs. One is Philip Jefferson and the other is Michael Barr. It is not clear that Jefferson has any specific duties as vice chair but Barr does in overseeing the Fed’s bank regulatory function. Barr’s term as vice chair ends in 2026 while his term as a governor doesn’t end until 2032. He says he will remain a governor which means that Trump will have to appoint a sitting governor as the vice chair for supervision. All signs point to Michele Bowman.
Barr was the Wall Street Journal’s least favorite Fed governor and was also in Trump’s crosshairs. The Journal repeatedly criticized his efforts for stricter regulation. Barr led the Fed’s unsuccessful attempt to strengthen banks’ capital requirements and was seen as Elizabeth Warren’s governor. Of course, Barr is just one governor and the majority of them have to sign off on his actions. Yet he is the only one pilloried by the banking industry and its press. The Wall Street Journal notes that Mr Barr had a hand in structuring the Dodd-Frank Act which authorized Warren’s brainchild, the Consumer Financial Protection Bureau and created the position of vice chair of supervision. The Journal states that “In his view, the 2008-2009 financial panic resulted from too little regulation, never mind the government-driven housing bubble, Fed policy that was too easy for too long, and sleepy bank examiners.” The Journal attributes bank failures such as Silicon Valley Bank to Mr Barr while excusing the Fed’s bank examiners and the other governors. In fact much the blame for the failure of SVB lies with the incompetence of the Federal Reserve Bank of San Francisco and its DEI president. Curiously, the Journal also implicates Mr Barr in the failures of Signature Bank and First Republic Bank. But those banks were regulated by the FDIC and not by the Fed. One would think that the Journal could have been more honest in its reporting. I am not defending Mr Barr but am only pointing out that he is a convenient scapegoat for the failures of the entire Fed Board, including Jerome Powell.
Barr pushed significant regulatory changes within banking, mostly associated with the riskiness of balance sheets. But Jay Powell supported his recommendations. Some have written that Barr’s vision was that which democrats have of bank regulation, namely more oversight and stricter rules concerning capital. The other democrats on the Fed Board are said to share that vision. Currently, there are four democrats on the board and three republicans (including Jay Powell). Whether the Fed will change direction even with a change in the vice chair position is not obvious. However, one thing is clear. Unlike some appointments, Barr was eminently qualified to oversee supervision. Prior to coming to the Board, he was a professor of law at the University of Michigan specializing in financial regulation and international finance. He also had served as the Department of the Treasury’s assistant secretary for financial institutions in the Clinton Administration.
Trump and members of his supporters have been critical of Barr and his role at the Fed and was said that they would seek to fire Barr. By Barr resigning he avoids a potential legal battle over whether Trump can fire him (or Jay Powell) while serving his term. Barr stated “The risk of a dispute over the position could be a distraction from our mission. In the current environment, I’ve determined that I would be more effective in serving the American people from my role as governor.” I have no doubt that Barr will continue to influence regulatory policy from his position as a governor and let the new vice chair for supervision catch all the slings and arrows that go with that position.
haroldblackphd.com 