Tarullo was instrumental in the creation of rules framework set by the embattled Dodd-Frank Act, and his resignation offers an opportunity for President Donald Trump to further his campaign promise for an overhaul of banking regulation by allowing a potential roadblock to reform to be replaced with a successor with views more in line with the White House.
President Barack Obama appointed Tarullo to the board in January 2009 for an unexpired term ending 31 January 2022.
Tarullo served as chair of the board's committee on supervision and regulation and was also chair of the Financial Stability Board's standing committee on supervisory and regulatory cooperation.
In his two-line resignation letter addressed to the president, Tarullo declined to offer a reason for his early departure.
Tarullo’s resignation marks the latest in swathe of Obama-era senior regulators standing down under the new administration, including Securities and Exchange Commission chair Mary Jo White, who vacated her position after four years on the day of Trump’s inauguration.
The loss of another experienced figure at the central bank will be seen as a win for Wall Street, which had been a vocal critic of Tarullo’s strict standard setting as part of his interpretation of Dodd-Frank, as well as the newly energised anti-regulation wing of the Republican party.
The groundwork for an extensive roll-back of post-crisis regulation has already been laid in the opening weeks of Trump’s administration by way of signed executive orders giving the Treasury broad powers to scrap rules that do not comply with the administration’s loosely defined ‘core principles’.
Part of the core principles are defined as enabling “American companies to be competitive with foreign firms in domestic and foreign markets” and “advance American interests in international financial regulatory negotiations and meetings”.
The executive order stipulates that the Treasury shall consult with the Financial Stability Oversight Council and report periodically to the president “on the extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other government policies promote the core principles”, and identify any that “inhibit” these core principles. It is largely thought that this means Dodd-Frank.
Federal Reserve chair Janet Yellen said: "Daniel Tarullo led the Fed's work to craft a new framework for ensuring the safety and soundness of our financial system following the financial crisis and made invaluable contributions across the entire range of the Fed's responsibilities."
"My colleagues and I will truly miss his deep expertise, impeccable judgment, wise insight, and strategic counsel."