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 on Thursday, alleging the central bank has broken federal rules in its handling of a sweeping overhaul of its capital regulations.
The suit filed in Washington, D.C., against the Fed and its Vice Chair for Supervision Michelle Bowman, alleges that private interactions Bowman held with Wall Street banks about an open public consultation on major capital rules were a breach of the Administrative Procedure Act that governs federal rulemaking.
It cites April reporting by Reuters 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 a bid to win further capital relief. It also cites a report by Bloomberg that Bowman 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 suit alleges that such interactions directly contravene APA rules that bar agency officials from discussing matters relating to a live rulemaking proceeding with any interested private party.
“By conducting a bad faith and corrupted rulemaking, Defendants’ actions ‘clearly violate an important constitutional or statutory right’ and thus present the ‘exceptional circumstances’ that would justify enjoining an ongoing unconstitutional proceeding,” the lawsuit claims.
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 unusual suit, one of a handful ever brought against the Fed, signals a growing backlash against President Donald Trump’s administration’s effort to scale back a raft of what regulatory advocates say are essential supervisory and regulatory financial system safeguards.
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 suits 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; Editing by Chris Reese)
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