Michael Barr will step down from his position because the Federal Reserve’s vice chair for supervision by Feb. 28, or sooner if President-elect Donald J. Trump appoints a successor, the Fed stated on Monday.

Mr. Barr will proceed to serve on the central financial institution’s Board of Governors. However in an interview, Mr. Barr stated the choice to depart his position as vice chair of supervision was meant to sidestep a protracted authorized battle with Mr. Trump that he believed may harm the central financial institution.

Some people connected to the Trump administration needed to fireplace Mr. Barr earlier than his time period as vice chair expired, in line with folks acquainted with the matter who spoke on background due to the sensitivity of the difficulty.

That would have resulted in a prolonged — and expensive — authorized battle over whether or not an incoming president has the authority to take away somebody from a Senate-confirmed place at an impartial company.

Some monetary regulatory specialists questioned why Mr. Barr — and the Fed itself — would permit a political change to affect who served in a strong position. Jerome H. Powell, the Fed’s chair, has made some extent of claiming that the Fed is impartial of the White Home and that its selections aren’t influenced by politics. Mr. Powell has additionally insisted that Mr. Trump lacks the authorized authority to fireplace him from his position as Fed chair, which can be confirmed by the Senate.

“I’m stunned by Barr’s announcement, as a result of I anticipated him to withstand Republican requires his ouster and make some extent of defending the Fed’s independence,” Ian Katz, managing director at Capital Alpha, stated in an electronic mail.

Mr. Barr stated he and his attorneys believed that he would prevail in courtroom if Mr. Trump have been to attempt to take away him. However he concluded that the battle wasn’t value waging due to the hurt it may inflict on the Fed.

“If it got here to litigation on the deserves, I’d win,” Mr. Barr stated. The larger query, he stated, was, “Do I wish to spend the subsequent couple of years combating about that and is that good for the Fed? And what I made a decision was that no, it’s not good for the Fed, it might be a critical distraction from our capacity to serve our mission.”

Mr. Barr stated the choice was not simple. “The query I wrestled with is a troublesome query, and in some ways it was a painful choice.”

By voluntarily stepping down, Mr. Barr additionally avoids testing whether or not Mr. Trump — or any president — has the authority to fireplace a Senate-confirmed official. Each Mr. Barr and Mr. Powell have stated that the regulation precludes Mr. Trump from eradicating them from their posts. However that view has but to be examined within the courts. A ruling permitting Mr. Trump to fireplace Mr. Barr may have opened the door to Mr. Powell’s firing, an concept the president-elect flirted with throughout his first time period.

His departure will successfully freeze any financial institution regulatory actions till Mr. Trump names somebody to the vice chairman position. In asserting his transfer, the central financial institution stated: “The Board doesn’t intend to take up any main rulemakings till a vice chair for supervision successor is confirmed.”

The mix of Mr. Barr’s choice to step down, mixed with the moratorium, struck some monetary regulatory specialists as particularly problematic.

“The Fed traditionally, zealously guards its independence,” Aaron Klein, the Miriam Ok. Carliner chair and senior fellow in financial research on the Brookings Establishment. “I discover it unusual that the Fed wouldn’t solely tacitly appear to help this choice by Barr, however go additional and announce a moratorium on rule making.”

Mr. Klein famous that if Mr. Trump opted to not decide anybody for a yr or extra, it may successfully chill financial institution rule making indefinitely.

Dennis Kelleher, the president, chief govt and co-founder of Higher Markets, a nonprofit that pushes for harder monetary regulation, referred to as Mr. Barr’s choice “surprising” and stated it might hinder the Fed’s position in overseeing the protection and soundness of the monetary system.

“His baseless capitulation to deregulation zealots will, actually, destroy that mission faster and extra completely than any dispute over the place,” he stated.

Mr. Barr’s transfer comes after a tumultuous tenure overseeing regulation and supervision of the nation’s largest banks. Mr. Barr oversaw an try to rewrite monetary guidelines that might have elevated the amount of cash that banks should have on the prepared.

The overhaul would have required the biggest banks to extend their cushion of capital — money and different simply accessible property that could possibly be used to soak up losses — which Mr. Barr stated would guarantee banks may stand up to intervals of extreme turmoil.

The proposal — and Mr. Barr — instantly got here underneath assault from all kinds of teams, together with the banking {industry}, lawmakers and even a few of his colleagues on the Fed. Two of the Fed’s seven governors, each Trump appointees, voted in opposition to the principles.

Mr. Barr in the end watered down the proposal in September after acknowledging the blowback.

“Life provides you ample alternative to study and relearn the lesson of humility,” Mr. Barr stated at an occasion that month.

Whereas Mr. Trump has not introduced any plans to attempt to exchange Mr. Barr, the president-elect has made clear he plans to take an industry-friendly stance towards banks, echoing his administration’s method throughout his first time period. Mr. Trump’s vice chair of supervision, Randal Ok. Quarles, labored to loosen financial institution supervision throughout his tenure.

Even earlier than Mr. Barr introduced his choice to depart, there was widespread hypothesis that the financial institution proposal, often known as Basel III endgame, wouldn’t acquire remaining approval in a Trump administration.

The adjustments should be collectively agreed upon by the Fed, the Federal Deposit Insurance coverage Company and the Workplace of the Comptroller of the Foreign money. Mr. Trump has the chance to appoint the administrators of the F.D.I.C. and O.C.C., although he has not but stated whom he plans to call.

Senator Tim Scott, the South Carolina Republican who will head the highly effective Senate Banking Committee, welcomed Mr. Barr’s choice to step down, citing the blowup of Silicon Valley Financial institution and different regional companies within the spring of 2023 in addition to the Basel III guidelines.

“From his supervisory failures in the course of the spring 2023 financial institution failures to the disastrous Basel III endgame proposal — Michael Barr has failed to fulfill the duties of his place,” Mr. Scott stated in a press release. “I stand able to work with President Trump to make sure now we have accountable monetary regulators on the helm.”