Fed Won’t Join Bank Supreme Court Appeal on Loan Disclosures

  Fed Won’t Join Bank Supreme Court Appeal on Loan Disclosures

         Statement by Bloomberg News Editor in Chief Matthew Winkler:
     “Greater transparency results in more accountability, and the banks’
resistance continues to engender suspicion among taxpayers about the bailouts.
  The banks’ move to appeal will deepen the public’s skepticism and defend a
 position that every other court has disagreed with. The public has the right
                                  to know.“

Business Wire

NEW YORK -- October 26, 2010

The Federal Reserve won’t join a banking industry trade group in asking the
U.S. Supreme Court to let the government continue to withhold details of
emergency loans made to financial firms in 2008.

The Clearing House Association LLC, a group of the biggest commercial banks
filed the appeal today. The Federal Reserve won’t file its own appeal,
according to Kit Wheatley, an attorney for the central bank.

The banks are appealing a lower court order requiring the Federal Reserve to
disclose lending records to Bloomberg LP, parent company of Bloomberg News. A
federal judge ruled in August 2009 that the Fed had to disclose the names of
banks that borrowed from its emergency lending programs.

“Greater transparency results in more accountability, and the banks’
resistance continues to engender suspicion among taxpayers about the
bailouts,” said Matthew Winkler, Bloomberg News editor-in-chief. “The banks’
move to appeal will deepen the public’s skepticism and defend a position that
every other court has disagreed with. The public has the right to know.”

Full story online at:
http://www.bloomberg.com/news/2010-10-26/fed-won-t-join-banks-appeal-to-high-court-over-emergency-loan-disclosures.html

The Fed is facing unprecedented oversight by Congress. The Wall Street Reform
and Consumer Protection Act, known as Dodd- Frank, mandates a one-time audit
of the Fed as well as the release of details on borrowers from Fed emergency
programs. The Discount Window, which provides short-term funding to financial
institutions, would have to disclose loans made after July 21, 2010, following
a two-year lag. The Bloomberg lawsuit asks for information on that facility.

Term Sheets

At issue are 231 “remaining term reports,” originally requested by the late
Bloomberg News reporter Mark Pittman, documenting loans to financial firms in
April and May 2008, including the borrowers’ names and the amounts borrowed.
Pittman asked for details of four lending programs, the Discount Window, the
Primary Dealer Credit Facility, the Term Securities Lending Facility and the
Term Auction Facility.

After averaging $257 million a week in the five years before March 2008,
Discount Window borrowing jumped to a peak of $111 billion on Oct. 29, 2008.
It was $20 million last week. The other three programs accounted for more than
$800 billion in lending at their peak, according to Fed data.

“The Discount Window is problematic because the Fed since the 1930s has used
it to provide assistance to banks on the verge of failure,” said Joseph R.
Mason, a finance professor at the Ourso College of Business at Louisiana State
University in Baton Rouge. “Making loans means you add liabilities to the
bank, so lending a bank money makes it more insolvent. This is a chance to
show that the Fed did not lend to weak banks.”

The New York-based Clearing House, which has processed payments among banks
since 1853, includes Bank of America Corp., Bank of New York Mellon Corp.,
Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co., US
Bancorp and Wells Fargo & Co.

Trade Secrets

In trying to avoid disclosing the documents, the Fed invoked one of nine
exemptions to the Freedom of Information Act, or FOIA, which mandates the
rules for public disclosures by the federal government. Exemption 4 makes
allowance for “trade secrets and commercial or financial information obtained
from a person and privileged or confidential,” according to the law.

Revealing borrowers’ names may stigmatize them, said Brian F. Madigan, the
Fed’s former director of monetary affairs.

The stigma “can quickly place an institution in a weakened condition vis-à-vis
its competitors by causing a loss of public confidence in the institution, a
sudden outflow of deposits (‘a run’), a loss of confidence by market analysts,
a drop in the institution’s share price, and a withdrawal of market sources of
liquidity,” Madigan said in a declaration that was part of the Fed’s defense.

Risk of Looking Weak

Manhattan Chief District Judge Loretta A. Preska wrote in her Aug. 24, 2009,
ruling that the risk of looking weak to shareholders and competitors was not
reason enough to keep the information from the public. On March 19, an appeals
court upheld Preska’s decision and on Aug. 20 the appeals panel denied the
Fed’s request to reconsider.

“Confidential business information can properly be withheld only when
disclosure clearly creates a risk of competitive harm that outweighs the
public interest in disclosure,” said David A. Schulz, a partner with the New
York law firm Levine Sullivan Koch & Schulz LLP who filed a friend-
of-the-court letter supporting Bloomberg’s position.“Otherwise, just about any
information a corporation gives the government could be kept from public
consumption.”

On his first day on the job, President Barack Obama vowed to open government
information to its citizens.

“The government should not keep information confidential merely because public
officials might be embarrassed by disclosure, because errors and failures
might be revealed, or because of speculative or abstract fears,” Obama said in
a Jan. 21, 2009, memo.

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