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 stated the choice to go away his position as vice chair of supervision was meant to sidestep a protracted authorized battle with Mr. Trump that he believed might injury the central financial institution.

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

That would have resulted in a prolonged — and dear — authorized struggle over whether or not an incoming president has the authority to take away somebody from a Senate-confirmed place at an unbiased 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 some extent of claiming that the Fed is unbiased of the White Home and that its choices usually are not 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 legal professionals believed that he would prevail in courtroom if Mr. Trump have been to attempt to take away him. However he concluded that the struggle wasn’t price waging due to the hurt it might inflict on the Fed.

“If it got here to litigation on the deserves, I might win,” Mr. Barr stated. The larger query, he stated, 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 could be a severe distraction from our potential to serve our mission.”

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

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 might 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 saying 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 mixture 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 Okay. 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 decide anybody for a yr or extra, it might successfully chill financial institution rule making indefinitely.

Dennis Kelleher, the president, chief govt and co-founder of Higher Markets, a nonprofit that pushes for more durable monetary regulation, referred to as Mr. Barr’s determination “stunning” and stated it could hinder the Fed’s position in overseeing the security and soundness of the monetary system.

“His baseless capitulation to deregulation zealots will, actually, destroy that mission faster and extra totally 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 sum of money that banks should have on the prepared.

The overhaul would have required the most important banks to extend their cushion of capital — money and different simply accessible belongings that might be used to soak up losses — which Mr. Barr stated would guarantee banks might stand up to intervals of extreme turmoil.

The proposal — and Mr. Barr — instantly got here beneath 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 principles.

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

“Life offers you ample alternative to be taught 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 substitute 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 Okay. Quarles, labored to loosen financial institution 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 called Basel III endgame, wouldn’t achieve closing approval in a Trump administration.

The adjustments have to 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 determination 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 tasks of his place,” Mr. Scott stated in an announcement. “I stand able to work with President Trump to make sure we’ve accountable monetary regulators on the helm.”