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 said on Monday.

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

Some people hooked up to the Trump administration wished to fireside Mr. Barr earlier than his time period as vice chair expired, in line with folks conversant in the matter who spoke on background due to the sensitivity of the problem.

That would have resulted in a prolonged — and dear — authorized combat 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 enable a political change to affect who served in a robust position. Jerome H. Powell, the Fed’s chair, has made a degree of claiming that the Fed is impartial of the White Home and that its choices should not influenced by politics. Mr. Powell has also insisted that Mr. Trump lacks the legal authority to fireside 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 a degree of defending the Fed’s independence,” Ian Katz, managing director at Capital Alpha, mentioned in an e-mail.

Mr. Barr mentioned he and his legal professionals believed that he would prevail in court docket if Mr. Trump have been to try to take away him. However he concluded that the combat wasn’t value waging due to the hurt it may inflict on the Fed.

“If it got here to litigation on the deserves, I might win,” Mr. Barr mentioned. The larger query, he mentioned, was, “Do I wish to spend the subsequent couple of years preventing 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 capability to serve our mission.”

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

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 mentioned: “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 determination 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 assist this determination by Barr, however go additional and announce a moratorium on rule making.”

Mr. Klein famous that if Mr. Trump opted to not choose anybody for a 12 months 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 determination “stunning” and mentioned it might hinder the Fed’s position in overseeing the protection and soundness of the monetary system.

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

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 financial rules that might have elevated the amount of cash that banks will need to have on the prepared.

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

The proposal — and Mr. Barr — instantly got here below 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 against the foundations.

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

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

Whereas Mr. Trump has not introduced any plans to attempt to change 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, worked to loosen bank supervision throughout his tenure.

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

The modifications have to be collectively agreed upon by the Fed, the Federal Deposit Insurance coverage Company and the Workplace of the Comptroller of the Forex. Mr. Trump has the chance to appoint the administrators of the F.D.I.C. and O.C.C., although he has not but mentioned 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 determination to step down, citing the blowup of Silicon Valley Financial institution and different regional corporations 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 obligations of his place,” Mr. Scott mentioned in an announcement. “I stand able to work with President Trump to make sure we’ve accountable monetary regulators on the helm.”