Better Markets sues the Fed and Bowman to halt the bank-capital rewrite

Better Markets sued the Federal Reserve and Vice Chair for Supervision Michelle Bowman on Thursday, alleging she privately discussed live bank-capital proposals with Wall Street CEOs and asking a Washington, D.C., court to halt the proceeding. Reuters, which first reported the filing, said the Washington nonprofit that campaigns for tighter Wall Street rules named the Fed and Bowman as defendants. A Fed spokesperson did not immediately respond, Reuters said. No comment from Bowman was reported.

The complaint treats those conversations as a breach of the Administrative Procedure Act. It cites April reporting by Reuters that Bowman told large-bank executives she did not expect another aggressive industry push for more capital relief, and a Bloomberg report that she privately “told Wall Street leaders to support capital plans that are widely seen as a win for industry and stop asking for carve outs.” Better Markets, in a case summary published with the complaint, says Bowman met secretly with Wall Street CEOs, including JPMorgan Chase’s CEO, during the comment period and, the group alleges, directed them on what to say in their public letters. The suit, quoting the complaint, says the defendants’ actions “clearly violate an important constitutional or statutory right” and present the “exceptional circumstances” that would justify “enjoining an ongoing unconstitutional proceeding.”

The legal theory, and what the suit asks

The legal theory is narrower than the capital math, and it is contested on its own terms. The Administrative Conference of the United States has explained that the APA prohibits ex parte contacts in formal adjudications and formal rulemakings conducted under trial-like procedures, and that the notice-and-comment statute, 5 U.S.C. § 553, imposes no comparable restriction. The D.C. Circuit, in Sierra Club v. Costle in 1981, wrote: “Where Congress wanted to prohibit ex parte contacts it clearly did so.” The March capital proposals are ordinary notice-and-comment rulemaking.

Better Markets is asking for more than a freeze. In the case summary it published with the filing in the U.S. District Court for the District of Columbia, the group says it wants the court to order the capital rules withdrawn and re-proposed, to have an official not involved in the alleged scheme run that proceeding, and to disqualify Bowman from further work on the package. Dennis Kelleher, the group’s president, said: “That’s not regulation or supervision. That’s corruption, and that’s why we are suing.” Reuters called the filing one of a handful ever brought against the Fed. No hearing date has been reported.

The live rulemaking is the unfinished rewrite the Fed, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation put out for comment on March 19: Basel III for the largest banks, a G-SIB surcharge overhaul, and a broader standardized-approach package. Comment letters were due June 18. No final rule has been published.

The 4.8% cut behind “modestly decrease”

The agencies’ March 19 release said overall banking-system capital would “modestly decrease,” large banks would see a modest cut and smaller banks a moderate one, and capital would remain “substantially higher” than before the financial crisis. Bowman, in a March 12 speech at the Cato Institute, previewed the package as a way to “right-size calibrations to match actual risk.” She said the Basel III piece would raise requirements a little for the largest banks, the G-SIB surcharge piece would lower them a little, and that together “these proposals would decrease the requirements by a small amount.”

Fed staff’s March 19 Board memo put numbers on that claim. The Basel III proposal would raise common equity Tier 1 requirements (CET1, the core equity capital ratio) for Category I and II firms, the largest and most internationally active U.S. banks, by 1.4%. The G-SIB surcharge proposal, which would measure systemic-risk indicators on averages rather than year-end snapshots and assign surcharges in 10-basis-point steps instead of 50-basis-point cliffs, would lower G-SIB CET1 requirements by 3.8%. Staff told the Board that, together with planned stress-test changes, CET1 requirements for Category I and II firms would fall 4.8%. At the open meeting that day, staff put the two capital proposals alone, without the stress-test overlay, at a 2.4% CET1 cut for the largest banks.

A separate enhanced supplementary leverage ratio rule, the eSLR, a backstop capital floor that does not vary with asset risk, is already on the books. The agencies issued it on November 25, 2025. It took effect April 1, 2026, with optional early adoption from January 1. Fed staff estimated it would reduce aggregate Tier 1 requirements by $13 billion, less than 2%, at G-SIB holding companies, and by about $219 billion at their major depository subsidiaries, capital that would still have to be retained inside the consolidated groups.

Governor Michael Barr, dissenting from the March proposals, stacked the unfinished package with that leverage rule. Combined with the eSLR, he said, G-SIB Tier 1 requirements would fall 6.0%, or $60 billion. The Board memo projects a 6.0% Tier 1 reduction for Category I and II firms once the eSLR is included, and the March 27 Federal Register notice projects a 6.0% reduction in aggregate Tier 1. An injunction of the March proceeding would not unwind the eSLR. The Fed has not published a final-rule date.

Bank funds since the proposals

The State Street Financial Select Sector SPDR ETF AXLF is payments-and-Berkshire heavy, the Invesco KBW Bank ETF BKBWB is the concentrated G-SIB wrapper, and the State Street SPDR S&P Bank ETF BKBE is equal-weight, so the G-SIBs barely register.

As of 1:55 p.m. Eastern, the bank funds were lower with the S&P 500, down 0.52% at 7,597.01, and nothing in the prices ties Thursday’s move to the filing:

The honest read for a holder is little, yet. Required capital at the large banks has not changed today. The eSLR cut is already in force. The March proposals are still proposals. No court has enjoined them.

From the March 18 close, the session before the agencies published the proposals, through Wednesday, JPMorgan returned 24.5% and Bank of America 35.2%, total return.

Bank shares have already priced in the capital relief the suit wants frozen.