Fed Wants En Banc Ruling on Bailout Disclosure Decision

BloombergBusinessWeek is reporting that the Federal Reserve Board asked an appeals court to reconsider a ruling requiring the agency to disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever.

Attorneys for the Fed yesterday asked the full U.S. Court of Appeals in New York to reconsider a unanimous ruling by a three-judge panel. If the court refuses, the Fed can appeal to the U.S. Supreme Court.

“The decision is of exceptional importance,” the Fed’s lawyers wrote in a legal brief. “The real-world consequence of the panel’s decision will be serious, perhaps irreparable harm to the institutional borrowers whose information will be revealed.”

The Court of Appeals panel ruled March 19 that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upheld a decision of a lower- court judge who in August ordered that the information be released. The Fed argued in the case that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. The three judge appeals court panel rejected that argument.

Freedom of Information

The U.S. Freedom of Information Act, or FOIA, “sets forth no basis for the exemption the board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the March 19 opinion. “If the board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”

The court was asked to decide whether loan records are covered by FOIA. Historically, the type of government documents sought in the case has been protected from public disclosure because they might reveal competitive trade secrets.

The Fed argued that it could withhold the information under an exemption that allows federal agencies to refuse disclosure of “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”

The Clearing House Association, which processes payments among banks, joined the case and sided with the Fed. The group includes ABN Amro Bank NV, a unit of Royal Bank of Scotland Plc, 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.

Clearing House Petition

The Clearing House yesterday also filed a petition asking the full court to reconsider the decision.
Bloomberg, majority-owned by New York Mayor Michael Bloomberg, sued after the Fed refused to name the firms it lent to or disclose loan amounts or assets used as collateral under its lending programs. Most of the loans were made in response to the deepest financial crisis since the Great Depression.

Lawyers for Bloomberg argued in court that the public has the right to know basic information about the “unprecedented and highly controversial use” of public money.

In its new court papers, the Fed argued in a 16-page brief that the three-judge panel made two “significant but erroneous” legal rulings in March.

First, the panel created a conflict among circuit courts of appeals by refusing to consider the potential harm to the agency’s “ability to carry out its functions” and to “manage the national economy.”

Fed Arguments

“Disclosure of the identities of borrowers using the emergency lending facilities will dramatically reduce the effectiveness of those facilities,” the Fed argued. “Borrowers will be deterred by the stigma associated with use of these facilities, and will avoid using them, as is evident from the very high interest rates banks are willing to pay to borrow in the private federal funds markets, rather than come to the discount window.”

Second, the Fed said, the three judges were incorrect in March when they ruled that the documents reflected the agency’s own actions. In fact, the documents were obtained from the borrowers themselves and should not have been made public under exceptions to the federal disclosure rule, the Fed argued.