Washington nonprofit Better Markets sues Federal Reserve over capital rule overhaul

• The suit alleges Bowman privately told Wall Street leaders to support revised capital plans and stop seeking additional carve-outs, constituting unauthorized ex parte communications during an active rulemaking process
• Litigation against the Fed over rulemakings is extremely rare; the last similar cases were in 2024 when banks sued over stress tests, marking the first such suits in recent memory
• The lawsuit represents pushback against the Trump administration's broader effort to scale back financial regulatory safeguards that reform advocates consider essential for system stability

Summary: Better Markets Sues Federal Reserve Over Capital Rule Process

Key Development:

Washington-based nonprofit Better Markets filed a lawsuit on September 10 against the Federal Reserve and Vice Chair for Supervision Michelle Bowman, alleging violations of the Administrative Procedure Act (APA) during the overhaul of bank capital regulations.

Core Allegations:

The suit claims Bowman engaged in improper private communications with Wall Street banks during an active public consultation on major capital rules. Reports cited in the lawsuit indicate Bowman privately advised bank leaders to support revised capital plans—viewed as favorable to the industry—and cease requesting additional carve-outs. Such interactions allegedly violate APA provisions prohibiting agency officials from discussing live rulemaking proceedings with interested private parties.

Background Context:

The capital rule overhaul follows aggressive industry pushback against the Fed's original 2023 capital plan. Bowman has stated her goal is streamlining regulations to better align with actual risks. The lawsuit characterizes the rulemaking process as conducted in "bad faith" and constituting "exceptional circumstances" warranting court intervention.

Market Significance:

This rare legal action against the Fed represents growing opposition to the Trump administration's regulatory rollback efforts, which advocacy groups argue weakens critical financial system safeguards. While Wall Street frequently litigates against regulators, suits targeting the Fed over rulemaking are exceptionally uncommon—the last instances occurred in 2024 when major banks challenged stress tests and climate guidance under the previous Democratic administration.

Status:

The Federal Reserve has not yet responded to comment requests. The outcome could significantly impact capital requirements for major banks and establish precedent for regulatory transparency in future rulemaking processes.