Aug. 25 (Bloomberg) -- The Federal Reserve must for the first time
identify the companies in its emergency lending programs after losing a
Freedom of Information Act lawsuit.
Manhattan Chief U.S. District Judge Loretta Preska ruled against the
central bank yesterday, rejecting the argument that loan records aren’t
covered by the law because their disclosure would harm borrowers’
The Fed has refused to name the financial firms it lent to or disclose
the amounts or the assets put up as collateral under 11 programs, most
put in place during the deepest financial crisis since the Great
Depression, saying that doing so might set off a run by depositors and
unsettle shareholders. Bloomberg LP, the New York-based company
majority-owned by Mayor Michael Bloomberg, sued on Nov. 7 on behalf of
its Bloomberg News unit.
“The Federal Reserve has to be accountable for the decisions that it
makes,” said U.S. Representative Alan Grayson, a Florida Democrat on
the House Financial Services Committee, after Preska’s ruling. “It’s
one thing to say that the Federal Reserve is an independent
institution. It’s another thing to say that it can keep us all in the
the judge said the central bank “improperly withheld agency records” by
“conducting an inadequate search” after Bloomberg News reporters filed
a request under the information act. She gave the Fed five days to turn
over documents it told the reporters it located, including 231 pages of
reports, and said it must look for more at the Federal Reserve Bank of
New York, which runs most of the loan programs.
The central bank “essentially speculates on how a borrower might enter
a downward spiral of financial instability if its participation in the
Federal Reserve lending programs were to be disclosed,” Preska wrote.
“Conjecture, without evidence of imminent harm, simply fails to meet
the Board’s burden” of proof.
David Skidmore, a Fed spokesman who said the board’s staff was
reviewing the 47-page ruling, declined to comment on whether the
central bank would appeal to the U.S. Court of Appeals in New York.
Federal Reserve Chairman Ben S. Bernanke, who led the biggest expansion
of the central bank’s power in its 95-year history, was nominated to a
second term today by President Barack Obama.
Obama promised a new era of government openness when he took office in
January, issuing a statement telling agencies “to adopt a presumption
in favor of disclosure” in responding to requests under FOIA.
Banks are worried that the disclosure of borrowers’ identities by the
Fed, the lender of last resort, would cause customers to empty their
bank accounts in a run on the bank, said Scott Talbott, vice president
of governmental affairs at the Washington-based Financial Services
Roundtable, a lobbying group.
“This issue is: ‘This bank borrowed X billion from the Fed, therefore
they must be in trouble, therefore I’m going to pull my money out,”
said Talbott. “That’s the type of danger that we’re worried about.
That’s the risk.”
Bloomberg LP said in the suit that U.S. taxpayers need to know the
terms of Fed lending because the public became an “involuntary
investor” in the nation’s banks as the financial crisis deepened and
the government began shoring up companies with capital injections and
loans. Citigroup Inc. and American International Group Inc. are among
those who have said they accepted Fed loans.
“When an unprecedented amount of taxpayer dollars were lent to
financial institutions in unprecedented ways and the Federal Reserve
refused to make public any of the details of its extraordinary lending,
Bloomberg News asked the court why U.S. citizens don’t have the right
to know,” said Matthew Winkler, the editor-in-chief of Bloomberg News.
“We’re gratified the court is defending the public’s right to know what
is being done in the public interest.”
The Fed’s balance sheet about doubled after lending standards were
relaxed in the wake of the collapse of Lehman Brothers Holdings Inc. on
Sept. 15, 2008. For the week ended Aug. 19, Fed assets rose 2.3 percent
to $2.06 trillion as it continued to buy mortgage-backed securities
under a program allowing the central bank to purchase non-government
securities for the first time.
The U.S. House may vote as soon as next month on a bill to require the
Fed to submit to audits by the Government Accountability Office, said
Representative Scott Garrett, a New Jersey Republican on the Financial
The judge’s ruling “is strikingly good news,” Garrett said. “This is what the American people have been asking for.”
The Freedom of Information Act obliges federal agencies to make
government documents available to the press and public. The Bloomberg
suit, filed in New York, didn’t seek money damages.
“The public deserves to know what’s being done with the money,” said
Lucy Dalglish, executive director of the Arlington, Virginia-based
Reporters Committee for Freedom of the Press. “This ought to be a
wake-up call for the public that they need to be far more educated
about this.” http://bloomberg.com/apps/news?pid=20670001&sid=a7CC61ZsieV4