Better Markets Files Lawsuit Against Federal Reserve Over Capital Requirements Process

The lawsuit alleges that during the comment period for proposed capital-requirements changes issued by the Fed and other regulators in March, Bowman held discussions with several prominent bank CEOs, including Jamie Dimon of JPMorgan Chase and David Solomon of Goldman Sachs. The proposal includes an increase of 1.4% in the common equity tier 1 capital requirements for the nation's largest banks. However, the overall requirement would decrease by 4.8% due to concurrent changes in stress tests and adjustments to the Global Systemically Important Bank (G-SIB) surcharge.

In an April letter to shareholders, Dimon criticized parts of the proposal as “frankly nonsensical.” His colleague, CFO Jeremy Barnum, referred to the G-SIB surcharge as “miscalibrated” shortly thereafter during JPMorgan’s earnings call.

Better Markets' lawsuit, filed in the U.S. District Court for the District of Columbia, references media reports which suggested Bowman anticipated minimal resistance from banks regarding the proposed changes. Moreover, reports indicated that she advised bank CEOs to limit their public comments and refrain from seeking exemptions from the rule changes.

The advocacy group claims these interactions allowed Bowman to manipulate public feedback, resulting in an exaggerated portrayal of support for the proposals while downplaying objections. Better Markets CEO Dennis Kelleher remarked that the Fed should act as an impartial facilitator when drafting regulations, stating that the process should not devolve into a “charade” influenced by secretive interactions with the banking sector.

Neither the Federal Reserve nor Bowman responded immediately to the lawsuit, which requires them to submit a formal response within 60 days.

In June, Bowman asserted during her testimony before the House Financial Services Committee that she never directed anyone’s comments on the rule, emphasizing her role in engaging with bank leaders and maintaining that the comment process remains open.

Better Markets is advocating for the district court to declare the rulemaking process “fatally compromised” and compel the Fed to rescind the current capital proposals and commence a new rulemaking process. Additionally, they seek to prevent Bowman and other Fed officials involved from participating in future discussions on capital requirements.

The group argues that the Fed and Bowman compromised due process by conducting a rulemaking that significantly decided outcomes in private discussions with the banking industry, rather than through authentic public deliberation. They assert that such an approach has infringed on their ability to participate meaningfully in the process.