Fed Sued Over Capital Rules Comment Period Alleging Procedural Violations

Better Markets, a US nonprofit that advocates for Wall Street reform, has filed a lawsuit against the Federal Reserve and Vice Chair for Supervision Michelle Bowman. The lawsuit alleges that the process for revising bank capital requirements violates federal rulemaking law. Specifically, it claims that Bowman's informal contacts with executives of large banks while the public comment period was ongoing violated the Administrative Procedure Act (APA).

The APA prohibits agency officials from consulting with private parties that have a stake in ongoing rulemaking matters. At issue is the Fed's proposed revision to capital requirements announced in March, which would establish additional capital buffers for large banks. If adopted as proposed, it is estimated that capital at covered institutions would decline by 4.8% overall.

The complaint cites two news reports from April, one from Reuters and another from Bloomberg, which detail Bowman's conversations with bank executives during the public comment period. According to the reports, Bowman expressed support for the proposal and advised against seeking carve-outs. Better Markets argues that such conduct constitutes 'bad faith and corrupt rulemaking' and violated their right to meaningfully comment on the regulation.

The lawsuit is a rare instance of opposition to the Trump administration's push for financial deregulation being taken to court. It highlights concerns that the financial system's safety net is being weakened by regulatory changes. The outcome of this case could have implications for the Fed's rulemaking procedures and the transparency of the process.