Bloomberg Response To Fed's Chickening Out Of Appealing Pittman Decision, Clearing House Appeal
FED WON’T JOIN BANK
SUPREME COURT APPEAL ON LOAN DISCLOSURES
Bloomberg News Editor in Chief Matthew Winkler:
transparency results in more accountability, and the banks’ fight continues
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. “
New York, October 26 – 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.
results in more accountability, and the banks’ fight 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.”
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.
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
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 &
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
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
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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