By Pete Schroeder

WASHINGTON (Reuters)

Federal Reserve Vice Chair for Supervision Michael Barr has sought legal advice to explore his options against any attempts by President-elect Donald Trump to remove him, sources said. This is the latest indication of a potential conflict between the incoming administration and the central bank.

Barr, appointed by President Joe Biden, has reached out to law firm Arnold & Porter for personal legal counsel. Sources indicate he has done this privately since typically, individual officials, rather than their agencies, have the legal standing to challenge removal attempts in court.

The Federal Reserve declined to comment, and representatives for Arnold & Porter and the Trump transition have not responded to requests for comment. Barr himself did not return calls or emails seeking comment.

Barr’s term as the Fed’s top regulatory official runs until July 2026, and he has expressed his intent to fulfill this term. However, details about his discussions with lawyers regarding the potential challenge to his removal remain undisclosed.

Recent reports suggest that Trump’s advisors are seeking ways to increase their influence over the Fed, which has raised concerns among officials and investors about the Fed’s necessary independence to set monetary policy properly.

Fed Chair Jerome Powell, appointed by Trump, faced criticism for his interest rate decisions and was deemed a target for removal. However, Powell stated after the election that Trump lacks authority to dismiss him, a claim supported by Trump, who later clarified he does not intend to remove Powell.

The law establishing the Fed permits the president to fire Fed governors only for cause but does not explicitly address whether Trump can demote Barr from his role. Powell has asserted that demotion of Fed officials isn’t allowed under current law.

Barr faces criticism from Wall Street and Republicans for his stringent regulatory approach, particularly regarding the Basel III Endgame and enhanced capital rules. The Wall Street Journal called for his dismissal, citing supervisory failures linked to the collapse of Silicon Valley Bank in March 2023.

Barr’s exploration of outside legal counsel reflects how significant he views the threat to his position. His future at the Fed seems precarious, especially as Trump aims to reduce regulatory burdens, although Barr could oppose the easing that Wall Street banks desire.

Notably, there’s no precedent for a president attempting to remove a Fed official. However, Trump’s earlier tenure saw court challenges regarding leadership changes at regulatory agencies like the Consumer Financial Protection Bureau, where similar resistance occurred.