- Key insight: The Federal Reserve Board and Federal Reserve Vice Chair for Supervision Michelle Bowman are being sued over the agency's handling of the notice-and-comment rulemaking process for its latest Basel III capital proposal.
- Expert quote: "The APA's fundamental purposes, including ensuring that the public has a meaningful opportunity to participate in the rulemaking process and that any resulting rules are based on the public record, public deliberations, and reasoned decision-making, have been subverted." —Better Markets lawsuit against the Fed
- Forward look: The suit asks the court to withdraw the proposal and to instruct Bowman to recuse herself from the rulemaking process.
The Federal Reserve Board and its chief regulatory officer are being sued over their handling of the notice-and-comment period for their latest push to finalize the Basel III capital standards.
In a lawsuit filed with the U.S. District Court for the District of Columbia, the advocacy group Better Markets accused Fed Vice Chair for Supervision Michelle Bowman of "rigging" the rulemaking process for its capital framework revisions by holding "secret meetings" with banking executives and "coaching" them on how to comment on the proposal.
"Bowman and other Fed Officials staged this reported charade to create a misleading record that presented greater support for and less opposition to Bowman's proposed and preferred rules," the organization wrote in its filing. "The rulemaking process was designed to enable informed and uninhibited public input for agencies to consider in adopting rules that have the force of law — not be a mere formality to give cover for secret collusion or manipulated, pre-determined outcomes."
Better Markets is asking the court to declare the rulemaking process — which
Bowman defended her engagement with bankers during a
"Yes, I meet with a number of institutions," Bowman said. "I did not direct anyone about their comments for the rule. Our comment process is open."
The lawsuit comes as the Fed processes and considers dozens of comments submitted earlier this year as part of a long-awaited finalization of the new capital standards. The framework aims to put the U.S. in compliance with international guidelines established by the Basel Committee on Banking Supervision in 2017 as a response to the global financial crisis of 2008.
Citing reports from Reuters and Bloomberg about undisclosed meetings between Bowman and executives of JPMorganChase, Goldman Sachs and other large banks that would be subject to the rules, Better Markets claims that the vice chair instructed industry participants to keep their comments limited and noncombative so the public record would appear favorable and allow the capital framework to finally be updated.
Better Markets claims these undisclosed meetings enabled Bowman and the Fed to offer "private assurances and private directives" to banks in exchange for their compliance. The group argues that this conduct resulted in a public record that is materially incomplete and in violation of the Administrative Procedures Act — the law governing agency rulemakings.
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"A record rigged in this manner has denied Better Markets its right to meaningfully participate in the rulemaking," the lawsuit states. "The APA's fundamental purposes, including ensuring that the public has a meaningful opportunity to participate in the rulemaking process and that any resulting rules are based on the public record, public deliberations, and reasoned decision-making, have been subverted."
Better Markets is a public advocacy group founded in 2010 in response to the subprime mortgage crisis and the financial tumult that followed. It has frequently argued for more stringent financial regulation and, in particular, higher capital requirements for large banks. In its filing, the organization notes that it has dedicated significant resources to analyzing and commenting on capital proposals during the past decade — efforts that would have been undermined by the collusion it alleges between Bowman and the banks.
"Better Markets is participating in a corrupted process in which the decisionmakers have reportedly coordinated with regulated entities to support a predetermined outcome," the lawsuit states. "As a result, Better Markets submitted its comments on a manipulated record, has engaged (and is currently engaging) in multiple forms of advocacy based on the incomplete and misleading record, and faces the imminent prospect that the Fed will finalize the 2026 capital proposals on that same corrupt record absent judicial intervention."
Rep. Rashida Tlaib, D-Mich., questioned Bowman about her meetings with officials from JPMorgan and Goldman Sachs during the June 4 hearing in the House Financial Services Committee. Tlaib entered the Bloomberg and Reuters articles into the record and said Bowman's engagement with the banks could have been "illegal," pointing to the then-ongoing comment process for the capital proposals.
Bowman pushed back against the characterization, arguing that it was her "responsibility" as a supervisor of banks to engage with the industry.
"These are not inappropriate meetings," she said.
