Clearing House Association

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Overview

Formed by banks 155 years ago, The Clearing House operates payment systems infrastructure and facilitates forums for the U.S. banking industry.

The Clearing House clears and settles more than 40 million check and electronic payments with a value of $2.4 trillion each day for financial institutions in the U.S. and around the world.

The Clearing House's strategic forum brings together financial institutions to discuss and take action on payments industry issues, while its bank association addresses legal and regulatory matters of critical importance to its members www.theclearinghouse.org.

Federal Reserve must disclose bank bailout records

The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest ever U.S. government bailout, a federal appeals court said.

The U.S. Court of Appeals in Manhattan ruled today 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 upholds a decision of a lower-court judge, who in August ordered that the information be released.

The Fed had 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 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 opinion. “If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”

The opinion may not be the final word in the bid for the documents, which was launched by Bloomberg LP, the parent of Bloomberg News, with a November 2008 lawsuit. The Fed may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court.

David Skidmore, a Fed spokesman, didn’t immediately return a call seeking comment.

Freedom of Information

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 Board of Governors of the Federal Reserve System had argued that disclosure of the documents threatens to stigmatize lenders and cause them “severe and irreparable competitive injury.”

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.

Wall of Secrecy

“Bloomberg has been trying for almost two years to break down a brick wall of secrecy in order to vindicate the public’s right to learn basic information,” Thomas Golden, an attorney for the company with Willkie Farr & Gallagher LLP, wrote in court filings.

Banks and the Fed warned that bailed-out lenders may be hurt if the documents are made public, causing a run or a sell- off by investors. Disclosure may hamstring the Fed’s ability to deal with another crisis, they also argued.

Much of the debate at the appeals court argument on Jan. 11 centered on the potential harm to banks if it was revealed that they borrowed from the Fed’s so-called discount window. Matthew Collette, a lawyer for the government, said banks don’t do that unless they have liquidity problems.

FOIA requires federal agencies to make government documents available to the press and public. An exception to the statute protects trade secrets and privileged or confidential financial data. In her Aug. 24 ruling, U.S. District Judge Loretta Preska in New York said the exception didn’t apply because there’s no proof banks would suffer.

Payment Processors

The Fed’s balance sheet debt doubled after lending standards were relaxed following Lehman’s failure on Sept. 15, 2008. That year, the Fed began extending credit directly to companies that weren’t banks for the first time since the 1930s. Total central bank lending exceeded $2 trillion for the first time on Nov. 6, 2008, reaching $2.14 trillion on Sept. 23, 2009.

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., The Bank of New York Mellon Corp., Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co., US Bancorp and Wells Fargo & Co.

More than a dozen other groups or companies filed friend- of-the-court briefs. Those arguing for disclosure of the records included the American Society of News Editors and individual news organizations.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York).

Federal Reserve lending court case

Source: Fed urges secrecy on banks in bailout programsAugust 27, 2009, Reuters

"The U.S. Federal Reserve asked a federal judge not to enforce her order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received, saying such disclosure would threaten the companies and the economy.

The central bank filed its request on Wednesday, two days after Chief Judge Loretta Preska of the U.S. District Court in Manhattan ruled in favor of Bloomberg News, which had sought information under the federal Freedom of Information Act.

Preska said the Fed failed to show that revealing the names would stigmatize the banks and result in "imminent competitive harm." The Fed asked the judge not to require disclosure while it readies an appeal.

"Immediate release of these documents will cause irreparable harm to these institutions and to the board's ability to effectively manage the current, and any future, financial crisis," the central bank argued.

It added that the public interest favors a delay, citing a potential for "significant harms that could befall not only private companies, but the economy as a whole" if the information were disclosed.

Underlying this case and a similar one involving News Corp's (NWSA.O) Fox News Network LLC is a question of how much the public has a right to know about how the government is bailing out a financial system in a crisis.

The Clearing House Association LLC, which represents banks, in a separate filing supported the Fed's call for a delay. It said speculation that banks' liquidity is drying up could cause runs on deposits, and trading partners to demand collateral.

"Survival can depend on the ephemeral nature of public confidence," Clearing House general counsel Norman Nelson wrote. "Experience in the banking industry has shown that when customers and market participants hear negative rumors about a bank, negative consequences inevitably flow."

The Clearing House said its members include ABN Amro Holding NV, Bank of America Corp (BAC.N), Bank of New York Mellon Corp (BK.N), Citigroup Inc (C.N), Deutsche Bank AG (DBKGn.DE), HSBC Holdings Plc (HSBA.L), JPMorgan Chase & Co (JPM.N), UBS AG (UBSN.VX), U.S. Bancorp (USB.N) and Wells Fargo & Co (WFC.N).

The case arose when two Bloomberg reporters submitted FOIA requests about actions the Fed took to shore up the financial system in 2007 and early 2008, including an expansion of lending programs and the sale of Bear Stearns Cos to JPMorgan.

The case is: Bloomberg LP v. Board of Governors of the Federal Reserve System, U.S. District Court, Southern District of New York (Manhattan), No. 08-9595."

CHA Owners

The Clearing House Payments Company is owned by the U.S. commercial banking affiliates of:

  • BB&T
  • Bank of America
  • The Bank of New York Mellon
  • The Bank of Tokyo-Mitsubishi UFJ, Ltd.
  • Citibank
  • City National Bank
  • Comerica Bank
  • Deutsche Bank
  • Fifth Third Bank
  • First-Citizens
  • HSBC
  • JPMorgan Chase Bank
  • KeyBank
  • M&T Bank
  • PNC Bank
  • RBS Citizens
  • UBS
  • U.S. Bank
  • Wells Fargo Bank

CHA Board of Directors

  • James Dimon , (TCH Board Chairman), Chairman & CEO, JPMorgan Chase
  • Kenneth D. Lewis, CEO and President, Bank of America
  • Kelly S. King, CEO, BB&T Corporation
  • Robert Kelly, CEO , The Bank of New York
  • Masaaki Tanaka, President & CEO, Union Bank of California, N.A.
  • Vikram Pandit, CEO, Citigroup
  • Ellen Alemany , Chief Executive Officer, RBS Americas & Citizens Financial Group
  • Ralph W. Babb Jr., Chairman & CEO, Comerica Incorporated
  • Seth Waugh, CEO, Deutsche Bank Americas
  • Paul J. Lawrence, President & CEO, HSBC Bank USA
  • Henry L. Meyer III, Chairman, President & CEO, KeyCorp
  • James E. Rohr, Chairman & CEO, PNC Bank
  • Teresa M. Ressel, CEO, UBS Securities LLC, UBS Investment Bank
  • Richard K. Davis, President & CEO, U.S. Bancorp
  • John G. Stumpf, President & CEO, Wells Fargo Bank

References

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