Ongoing Coverup
WASHINGTON — Better Markets has sued the Federal Reserve and its top banking regulator, alleging Fed officials secretly coordinated with some of Wall Street’s largest banks while the central bank was considering changes that could reduce capital requirements for major financial institutions.
The nonprofit financial reform organization filed the lawsuit Thursday in U.S. District Court for the District of Columbia against the Federal Reserve and Vice Chair for Supervision Michelle Bowman, according to Barron’s and Reuters.
Better Markets alleges Bowman held private meetings with executives from major banks, including JPMorgan Chase and Goldman Sachs, while a formal public comment period was underway on proposed changes to bank capital requirements.
The organization accuses Bowman of “colluding with, coaching, and directing” bank executives on how they should respond to the proposals, according to Barron’s.
Reuters reported a Federal Reserve spokesperson did not immediately respond to a request for comment on the lawsuit. Bowman has previously said the Fed’s regulatory overhaul is intended to better align regulation with actual risks while maintaining the safety and soundness of the banking system.
Allegations Center on Private Communications
At the center of the lawsuit are communications between Bowman and banking executives following the Fed’s March release of proposed changes to capital standards.
The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency on March 19 proposed a series of changes to the regulatory capital framework. The proposals included changes affecting the largest banks as well as other banking organizations.
The Fed has said the changes are intended to make capital requirements more sensitive to risk, simplify portions of the framework and continue protecting the safety and soundness of the banking system.
The public comment period on the proposals ended June 18.
About the Proposed Changes
The proposed changes would reduce capital requirements for affected large banks by approximately 4.8% in aggregate, according to Reuters.
Better Markets contends that during the comment period Bowman privately communicated with executives from large banks and encouraged them not to mount the kind of aggressive opposition they had directed at an earlier version of the capital proposal.
Reuters reported in April that Bowman and other Fed officials had communicated to banking executives that they had worked to address the industry’s earlier concerns and did not expect banks to repeat their aggressive opposition to the 2023 proposal.
Officials also indicated industry comments should be “limited and specific,” Reuters reported at the time, citing people familiar with the communications.
Barron’s reported Better Markets alleges Bowman also warned bank executives against using an “aggressive” tone in their comments.
Better Markets Alleges Rulemaking Was ‘Rigged’
Better Markets contends those private discussions went beyond ordinary communications between regulators and regulated institutions and improperly influenced an active federal rulemaking process.
The lawsuit alleges the interactions violated federal procedural requirements and prevented Better Markets and other members of the public from participating in the rulemaking process on equal terms.
Better Markets further alleges the Fed disclosed other meetings between its staff and banking industry representatives concerning the capital proposals but failed to disclose Bowman’s meetings.
‘Ongoing Coverup’ Alleged
That discrepancy “strongly suggests that the Fed is involved in an ongoing coverup,” the organization alleges, according to Barron’s.
Better Markets argues the rulemaking was conducted with a predetermined objective of reducing bank capital requirements and described the process in its complaint as a “coordinated charade” involving the regulator and regulated institutions.
“This is not just some technical dispute about process,” Better Markets President and CEO Dennis Kelleher said in a statement reported by Reuters. “The corruption alleged here was to rig the rules related to bank capital, which are critical financial stability rulemakings.”
Bowman Questioned by Congress
Bowman’s communications with bank executives had previously drawn questions on Capitol Hill.
According to Barron’s, the Better Markets lawsuit points to a June congressional hearing at which Bowman was asked about meetings with bank CEOs. Bowman did not deny holding the meetings and said she had met with bank executives in her capacity as the Fed’s vice chair for supervision.
In her June testimony before the House Financial Services Committee, Bowman defended the broader capital overhaul, saying the proposals were developed through a “bottom-up review” of capital requirements rather than by working backward toward a predetermined reduction in capital.
Bowman said the proposed framework would better align requirements with risk while preserving strong capital levels and financial stability.
The Federal Reserve has also said the proposals would clarify requirements, eliminate overlaps and support lending while maintaining the strength of the banking system.
Better Markets Wants Process Restarted
Better Markets is asking the court to halt the current rulemaking process and require the capital proposals to be withdrawn, according to Barron’s.
The group wants a new rulemaking process conducted under the supervision of a Fed official it says is not affected by the alleged misconduct.
“The Fed is supposed to be an honest broker when enacting rules to protect hardworking Americans from Wall Street’s biggest, most dangerous banks,” Kelleher said in a statement cited by Barron’s.
Better Markets has been an outspoken critic of the proposed capital changes. In June, the organization submitted three comment letters opposing major portions of the Fed, FDIC and OCC proposals, arguing that reducing capital requirements could leave large banks and the financial system more vulnerable to losses.
The Fed, meanwhile, has maintained that the banking system remains strongly capitalized. Its 2026 stress test found large banks could absorb more than $708 billion in losses under a hypothetical severe recession while remaining above minimum capital requirements.
The capital proposals have not been finalized.
