Grant McCool and Jonathan Stempel, Reuters
Friday, March 19, 2010
NEW YORK — In a significant victory for news media, a federal appeals court said the U.S. Federal Reserve must disclose records on emergency lending programs to banks bailed out by the government in the financial crisis.
The U.S. Second Circuit Court of Appeals on Friday ordered the Fed to release details of emergency lending programs it adopted starting in late 2007 to shore up the financial system and forestall a complete meltdown of global financial markets.
Bloomberg LP, the parent of Bloomberg News, and News Corp’s Fox News Network sought details of the central bank’s actions under the federal Freedom of Information Act, or FOIA, which requires government agencies to make documents public.
The Fed argued against disclosure, citing an exemption that it said allows federal agencies to refuse to disclose trade secrets and commercial or financial information.
It also contended that allowing disclosure of participants in the programs and the collateral they posted could cause “competitive and reputational harm,” perhaps triggering bank runs, and impede the central bank’s ability “to effectively manage the current, and any future, financial crisis.”
But giving the Fed power to deny disclosure because it thinks it best to do so “would undermine the basic policy that disclosure, not secrecy, is the dominant objective of FOIA,” Chief Judge Dennis Jacobs wrote for a three-judge panel.
“If the Board believes such an exemption would better serve the national interest,” he added, “it should ask Congress to amend the statute.”
Bloomberg had won its case at the district court level, while Fox News had lost its case. The Second Circuit ruling threw out the ruling against Fox and ordered a lower court judge to decide what materials must be disclosed.
Fed spokeswoman Michelle Smith said the central bank is reviewing the decision, and weighing options for reconsideration or appeal.
An appeal could go to the U.S. Supreme Court.
The Clearing House Association, a group of major U.S. and European banks, said it was disappointed with the decision. It said the court did not reach the “fundamental issue” of whether disclosures would have competitively harmed banks, general counsel Paul Saltzman said in a statement.
Bloomberg brought its case to force the Fed to release records of the actions it took to shore up the financial system starting in late 2007, including the March 2008 sale of Bear Stearns Cos to JPMorgan Chase & Co.
It sought information about loans conducted at the Fed’s discount window, the primary dealer credit facility, the term securities lending facility and the term auction facility.
The discount window is the program through which the 12 Federal Reserve Banks make short-term loans.
“We’re completely thrilled about the decision,” said Amanda Bennett, executive editor of projects and investigations at Bloomberg News, in an interview.
“The transparency of Federal Reserve Board decision making is something the American public has a right to,” she said. “The argument that it could harm the market is largely theoretical. Markets get in trouble not when people know too much about what is going on, but know too little.”
In a separate statement, Kevin Magee, an executive vice president of Fox Business Network, said, “We are pleased that this information is finally, and rightfully, going to be made available to the American public.”
Reuters is part of a group of media organizations that submitted a brief to the appeals court supporting Bloomberg.
The media organizations’ principal argument included that the public interest in disclosure trumped any potential risk of harm to borrowers, and that the identity of those borrowers was itself not confidential information.
In its decision, the appeals court said the Fed and Clearing House set forth “plausible, and forcefully made” arguments that disclosure “would harm the banks that borrowed (by disclosing their prior distress) and the banking system as a whole (because banks under stress may hesitate to seek relief or rescue).”
But it said “disclosure of the contested records would not cause the Federal Reserve Banks to suffer the kind of harm contemplated by the ‘privileged or confidential’ requirement” of an exemption under the FOIA.
Ms. Bennett said Bloomberg called the Fed after Friday’s decision came down to again request the material sought. “There is still a great deal to be learned from decision making, who got the loans, and what collateral was posted,” she said.
Clearing house members include the ABN Amro Bank NV unit of Royal Bank of Scotland Group Plc, Bank of America Corp, Bank of New York Mellon Corp, Citigroup Inc, Deutsche Bank AG, HSBC Holdings Plc, JPMorgan, UBS AG, US Bancorp and Wells Fargo & Co.
The cases are Bloomberg LP v. Board of Governors of the Federal Reserve System et al and Fox News Network LLC v. Board of Governors of the Federal Reserve System et al, U.S. Court of Appeals for the Second Circuit, Nos. 09-4083 and 09-3795.
© Thomson Reuters 2010
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