By Pete Schroeder and Michelle Price
WASHINGTON, Sept 10 (Reuters) – Better Markets, a Washington nonprofit that advocates for Wall Street reforms, sued the U.S. Federal Reserve and its top regulatory official on Thursday, alleging the central bank mishandled a sweeping overhaul of its capital regulations.
The unusual lawsuit filed in Washington, D.C., signals a growing backlash against the Trump administration’s effort to scale back a raft of what regulatory advocates say are essential supervisory and regulatory financial system safeguards.
It alleges that private interactions the Fed’s vice chair for supervision, Michelle Bowman, held with Wall Street banks about an open public consultation on major capital rules “corrupted” the federal rulemaking process, depriving Better Markets of due process under the Fifth Amendment. The lawsuit leans on notice-and-comment requirements and other safeguards associated with the Administrative Procedure Act as evidence that the process was tainted.
It cites April reporting by Reuters that Bowman told banking executives that she did not expect the industry, which fought aggressively for the Fed to overhaul its original 2023 capital plan, to stage another major pushback in an attempt to win further capital relief. It also cites a report by Bloomberg that she privately “told Wall Street leaders to support capital plans that are widely seen as a win for industry and stop asking for carve outs.”
The lawsuit alleges that the undisclosed interactions violated restrictions on private communications in federal rulemakings. In doing so, Bowman violated Better Markets’ right to meaningfully participate in and comment on the rule, the group alleges.
PROPOSED CAPITAL CHANGES UNDER REVIEW
A spokesperson for the Fed did not immediately respond to a request for comment. Bowman, who has been leading the changes, has previously said her goal is to streamline regulations and oversight to make them more sensitive to real risks.
The Fed in March proposed changes to the Basel, GSIB surcharge and other related rules, which determine funds big banks must put aside to absorb potential losses, which would result in capital falling for the affected lenders by 4.8% in aggregate. The rule was subject to a public consultation which ended in June and is not yet finalized.
“This is not just some technical dispute about process,” Better Markets CEO Dennis Kelleher said in a statement. “The corruption alleged here was to rig the rules related to bank capital, which are critical financial stability rulemakings.”
While Wall Street groups have frequently sued federal regulators, litigation against the Fed over rulemakings is rare. Big banks in 2024 under the former Democratic administration sued the central bank over its annual “stress test” health checks and fair lending rules, but those lawsuits were the first in recent memory, according to a Reuters analysis at the time and academic Fed-watchers.
(Reporting by Michelle Price and Pete Schroeder in Washington; Editing by Chris Reese and Matthew Lewis)
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