The early departure of the Federal Reserve’s top financial regulator allows for a more industry-friendly official to take his place, the latest boon for U.S. banks riding a wave of post-election optimism.

Federal Reserve Vice Chair for Supervision Michael Barr said Monday that he plans to step down from his role by next month to avoid a protracted legal battle with the Trump administration, which had weighed seeking his removal.

The announcement, a reversal from Barr’s previous comments on the matter, ends his supervisory role roughly 18 months earlier than planned. It also removes a possible impediment to Trump’s deregulatory agenda.

Banks and other financial stocks were among the big winners after the election of Donald Trump in November on speculation that softer regulation and increased deal activity, including mergers, were on the way. Weeks after his victory, Trump selected hedge fund manager Scott Bessent as his nominee for Treasury Secretary.

Trump has yet to name nominees for the three major bank regulatory agencies — the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau.

Now, with Barr’s resignation, a more precise image of incoming bank regulation is forming.

Trump is limited to picking one of two Republican Fed governors for vice chair of supervision: Michelle Bowman or Christopher Waller.

Waller declined to comment, while Bowman didn’t immediately respond to request for comment.

Bowman, whose name had already appeared on short lists for possible Trump administration roles and is considered the frontrunner, has been a critic of Barr’s attempt to force American banks to hold more capital — a proposal known as Basel III Endgame.

“The regulatory approach we took failed to consider or deliver a reasonable proposal, one aligned with the original Basel agreement yet suited to the particulars of the U.S. banking system,” Bowman said in a November speech.

Bowman, a former community banker and Kansas bank commissioner, could take on “industry-friendly reforms” around a number of sore spots for banks, according to Alexandra Steinberg Barrage, a former FDIC executive and partner at Troutman Pepper Locke.

That includes what bank executives have called an opaque Fed stress test process, long turnaround times for merger approvals and what bankers have said are sometimes unfair confidential bank exams, Barrage said.

When it comes to the Basel Endgame, first announced in July 2023 before a toned-down proposal was released last year, it’s now more likely that its ultimate form will be far gentler for the industry, versus versions that would’ve forced large banks to withhold tens of billions of dollars in capital.

Barr led the interagency effort to draft the sweeping Basel Endgame, whose initial version would’ve boosted capital requirements for the world’s largest banks by roughly 19%. Now, Barrage and others see a final version that is far less onerous.

“Barr’s replacement could still work with the other agencies to propose a new B3 Endgame rule, but we think such a proposal would be capital-neutral industry-wide,” Stifel analyst Brian Gardner said Monday in a note. “Bowman voted against the 2023 proposal, and we expect she would lead any B3 re-write in a different direction.”

If lenders ultimately beat back efforts to force them to hold more capital, that would enable them to boost share buybacks, among other possible uses for the money.

Bank stocks traded higher Monday after Barr’s announcement, with the KBW Bank Index rising as much as 2.4% during the session. Citigroup and Morgan Stanley, which have both garnered headlines for regulatory matters last year, were among the day’s biggest gainers, each rising more than 2%.

Notably, Barr is not resigning from his role as one of seven Fed governors, which preserves the current 4-3 advantage of Democrat appointees on the Fed board, according to Klaros Group co-founder Brian Graham.

“Barr’s resignation of the vice chair role, while remaining a governor, is actually very clever,” Graham said. “It preserves the balance of power for board votes for a year or so, and it constrains the choices for his replacement to those currently serving on the board.”