New York District Court and the Federal Reserve

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The Federal Reserve 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, 2008 on behalf of its Bloomberg News unit.

“The Federal Reserve has to be accountable for the decisions that it makes,” said 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 dark.”

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Fed gets 60-day delay on bailout disclosure

A U.S. appeals court granted the Federal Reserve a 60-day delay in implementing a ruling to force the central bank to reveal details of its emergency lending programs to banks during the financial crisis.

The delay is 30 days shorter than the Fed requested and was granted in a two-sentence order by the U.S. Second Circuit Court of Appeals. It gives the Fed time to consider whether to appeal to the U.S. Supreme Court.

In March, the court had ordered the Fed to disclose the names of bailout recipients, amounts received and other information that Bloomberg LP, the parent of Bloomberg News, and News Corp's (NWSA.O) Fox News Network requested under the federal Freedom of Information Act.

The cases are Bloomberg LP v. Board of Governors of the Federal Reserve System et al, U.S. Court of Appeals for the Second Circuit, Nos. 09-4083, 09-4097.

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).

U.S. 2nd Circuit Court of Appeals hears Fed appeal

"Lawyers for the Federal Reserve Board argued Monday that the Fed wasn't required to make public information about individual banks borrowing from its discount window and other last-resort lending programs.

The U.S. Second Circuit Court of Appeals in New York heard appeals in two cases on efforts by media organizations to gain access to information on banks using such programs. The Fed had been ordered to release information in one of the cases.

Matthew Collette, a lawyer for the Fed, argued that banks would be less likely to use the discount window, which provides short-term loans to banks, or other last-resort lending programs if they knew their usage would be made public. Accessing the window carries a negative connotation, even when a healthy bank suffering a short-term liquidity issue does it, Mr. Collette said.

Thomas H. Golden, a lawyer for Bloomberg LP's Bloomberg News, argued the information should be made public and doesn't meet the narrow exemption requirements for nondisclosure under the federal Freedom of Information Act.

Bloomberg News, after making requests under the FOIA, filed a lawsuit last year seeking records related to collateral posted to access certain Fed programs between April 4, 2008, and May 20, 2008.

Fox Business separately sued seeking access to information on borrowers after the Fed temporarily cut interest rates and lengthened the loan terms for money lent through the discount window.

U.S. District Judge Loretta Preska ruled in Bloomberg's favor in August, ordering the Fed to turn over the information. U.S. District Judge Alvin Hellerstein denied Fox's request in July.

Last month, several media companies, including Dow Jones & Co., New York Times Co., the Associated Press and Reuters America LLC, filed an brief backing Bloomberg's request.

News Corp. is the parent company of Dow Jones & Co., publisher of The Wall Street Journal, and owns Fox Business. Reuters America LLC is a subsidiary of Thomson Reuters Corp."

Fed Should Release Borrowers’ Names, Bloomberg Says

"The Federal Reserve should be forced to identify companies that received loans from the central bank because it can’t demonstrate that borrowers would be harmed by the disclosure, according to lawyers who won a Freedom of Information Act lawsuit.

There’s nothing proprietary in the details sought by the Bloomberg News unit of Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, attorneys for the company said today in court papers. The filing by Bloomberg opposes the Fed’s request for a court to halt disclosure of information while an appeal proceeds.

Bloomberg won a ruling from Manhattan’s chief federal judge on Aug. 24 affirming the right of U.S. taxpayers to know about the financial firms that borrowed money. The Fed last year began extending credit directly to companies that aren’t banks for the first time since it was created in 1913. Total lending by the Fed was $2.12 trillion on Sept. 30.

Divulging specifics about the loan program might touch off a run by depositors, unsettle shareholders and hurt the central bank’s “ability to perform important statutory functions at a time of economic upheaval,” Fed lawyers have said in legal filings.

David Skidmore, a Fed spokesman, declined to comment.

Details about the borrowers and their collateral are “central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression,” attorneys for Bloomberg said in the suit.

The Freedom of Information Act obliges federal agencies to make government documents available to the public. The Bloomberg suit didn’t seek money damages.

Bloomberg responded today to the Fed’s motion to keep the borrower information confidential while it seeks to overturn the Aug. 24 ruling in the U.S. Court of Appeals in New York, according to Thomas Golden, a lawyer at New York-based Willkie Farr & Gallagher LLP, who represents the company.

Today’s filing couldn’t be immediately confirmed in court records.

Bloomberg's editor-in-chief's op-ed on Fed transparency

"...The Fed says taxpayers don't have the right to know these things. What's more, it went to court to resist giving an accounting of its actions under the Freedom of Information Act. The request was filed by Bloomberg News through its parent, Bloomberg LP.

Last month, Chief U.S. District Judge Loretta A. Preska in Manhattan disagreed with the Fed. In a 47-page ruling, she found that the facts and the law require the central bank to release its lending records. The Fed is now considering whether to appeal her ruling.

The Fed says it can't give up the documents without stigmatizing banks and frightening customers into yanking their deposits. There is no evidence to support such an assertion, and recent events show that the opposite is true. When Citigroup Inc. in November received a government rescue package that shielded it from losses on toxic debt and injected $20 billion of capital, Citigroup shares soared 58% in New York trading. About the same time, E*Trade Financial Corp., the No. 4 online brokerage by client assets, surged 50% (the most in 12 years) after saying it was "optimistic" about receiving taxpayer funds under the government's Troubled Asset Relief Program.

Since its creation in 1913, the Fed has been the watchdog over our money. Now it is running interference for banks that borrowed our money, and went so far as to insist to a federal judge that the public shouldn't worry about what it does with our money.

The law doesn't allow the government to get away with secrecy based on a mere claim that some sort of damage would result if it released the information in question. To prevail, the Fed must "provide evidence that if the requested information is disclosed, competitive harm would be 'imminent,'" Judge Preska wrote. The Fed must show that competitors would use against a bank the fact that it received federal dollars—that running to the government trough for sustenance would become a competitive disadvantage.

That isn't an easy test, and with hundreds of billions poured into financial institutions, it shouldn't be. What's more, the Fed didn't come close to meeting this test. All it offered in court were sworn statements from Fed employees speculating that borrowers might be labeled as losers. They said nothing about how competing banks might use the information.

The issue at stake here is understanding the financial crisis and its aftermath. The information Bloomberg is seeking is vital to that, and it belongs to all Americans. Bloomberg isn't alone in saying so. Dow Jones, the New York Times, the Associated Press, Gannett Newspapers, Hearst, Advance Publications, and the Reporters Committee for Freedom of the Press have all expressed support for Bloomberg's efforts and may join a friend-of-the-court brief if the decision is appealed.

Any appeal would have to be mounted by Solicitor General Elena Kagan, who reports to President Barack Obama through Attorney General Eric Holder. While the decision is theirs to make, the buck still stops at 1600 Pennsylvania Avenue.

"Openness will strengthen our democracy and promote efficiency and effectiveness in government," Mr. Obama wrote in a letter to all agency and department heads on his second day as president. "Transparency promotes accountability" because "information maintained by the federal government is a national asset, he noted. "My administration is committed to creating an unprecedented level of openness in government.

This is an opportunity for Mr. Obama to make good on his promise. If he forgoes an appeal, he will show that he means what he says about transparency. So far, there has been far too little accountability at the Fed for how it used taxpayer money to save banks that failed their shareholders and creditors by making bets that didn't pay off."

Federal Reserve says disclosure will hurt banks

Source: Federal Reserve Says Disclosing Loans Will Hurt Banks Bloomberg, August 27, 2009

"The Federal Reserve argued yesterday that identifying the financial institutions that benefited from its emergency loans would harm the companies and render the central bank’s planned appeal of a court ruling moot.

The Fed’s board of governors asked Manhattan Chief U.S. District Judge Loretta Preska to delay enforcement of her Aug. 24 decision that the identities of borrowers in 11 lending programs must be made public by Aug. 31. The central bank wants Preska to stay her order until the U.S. Court of Appeals in New York can hear the case.

“The immediate release of these documents will destroy the board’s claims of exemption and right of appellate review,” the motion said. “The institutions whose names and information would be disclosed will also suffer irreparable harm.”

The Fed’s “ability to effectively manage the current, and any future, financial crisis” would be impaired, according to the motion. It said “significant harms” could befall the U.S. economy as well.

The central bank didn’t say when it would file its appeal.

Fed lawyer Kit Wheatley told Preska in a conference call today that she did not know how long it would take for the Fed board to search the New York Fed for records.

“We really don’t know what’s in New York,” Wheatley said. “We don’t control the system of record-keeping in New York.”

The Standard

The Fed’s lawyer went on to say that she did not know what records would fall under a “delegated function,” which would be a task assigned to the New York Fed.

Preska interrupted Wheatley, saying that “Ms. Wheatley, I held that’s not the standard. You didn’t search under the regulation. You’re supposed to search under the regulation.”

Preska scheduled another conference call for 2:30 p.m. today to discuss the schedule for a search of the New York Fed.

“Nobody is going to deny you your right to an appeal,” Preska said on the call, “We’re going to do it expeditiously, not in a piecemeal fashion and hand it all off to the Second Circuit.”

The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under the emergency programs, saying disclosure 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 under the Freedom of Information Act on behalf of its Bloomberg News unit.

Public Interest

“Our argument is that the public interest in disclosure outweighs the banks’ interest in secrecy,” said Thomas Golden, a lawyer with New York-based Willkie Farr & Gallagher LLP who represents Bloomberg.

Preska’s Aug. 24 ruling rejected the Fed’s argument that the records should remain private because they are trade secrets and would scare customers into pulling their deposits.

“What has the Fed got to hide?” said Senator Bernie Sanders, a Vermont independent who sponsored a bill to require the Fed to submit to an audit by the Government Accountability Office. “The time has come for the Fed to stop stonewalling and hand this information over to the public,” he said in an e- mail.

The Clearing House Association LLC, an industry-owned group in New York that processes payments between banks, filed a declaration that accompanied the request for a stay.

Negative Consequences

“Experience in the banking industry has shown that when customers and market participants hear negative rumors about a bank, negative consequences inevitably flow,” Norman Nelson, vice president and general counsel for the group, said in the document. “Our members have accessed the discount window with the understanding that the Fed will not disclose information about their borrowing, especially their identity.”

Members of the Clearing House are ABN Amro Holding NV, Bank of America Corp., Bank of New York Mellon Corp., Citigroup Inc.Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase Inc., UBS AG, U.S. Bancorp and Wells Fargo & Co.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan)."

Federal Reserve seeks delay in disclosure

Source: Federal Reserve Seeks Delay in Disclosure of Emergency Lending Bloomberg, August 27, 2009

"The Federal Reserve asked a judge yesterday to delay enforcement of her decision requiring the central bank to identify companies in its emergency lending programs.

Chief U.S. District Judge Loretta Preska in Manhattan said on Aug. 24 that the Fed had until Aug. 31 to disclose daily reports on borrowing by banks and other financial institutions. The central bank wants Preska to stay her order, made in a Freedom of Information Act lawsuit, until the U.S. Court of Appeals in New York can act on an appeal that the Fed said it intends to file.

The Fed and U.S. banks would suffer irreparable harm if details of the loan programs were made public, according to the central bank’s senior counsel, Yvonne Mizusawa.

The Clearing House Association LLC, an industry-owned group in New York that processes payments between banks, filed a declaration that accompanied the request for a stay.

“There are numerous examples of financially sound institutions collapsing or suffering further financial deterioration from the loss of public confidence,” Norman Nelson, vice president and general counsel for the group, said in the document.

Preska’s Aug. 24 ruling against the central bank rejected the Fed’s argument that the records shouldn’t be disclosed because they are trade secrets and would scare customers into pulling their deposits and exacerbating a run on the banks.

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, saying that doing so might set off a run by depositors and unsettle shareholders.

Bloomberg LP, the New York-based company that’s majority- owned by Mayor Michael Bloomberg, sued on Nov. 7 on behalf of its Bloomberg News unit. Bloomberg News opposes the Fed’s request for a stay.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan)."

Federal court requires Fed to reveal loan recipients

Source: Court Orders Federal Reserve to Disclose Emergency Loan Details Bloomberg, August 25, 2009

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’ competitive positions.

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 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 dark.”

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.

‘Involuntary Investor’

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.

Bloomberg 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.

‘Public Interest’

“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 Services Committee.

‘Wake-Up Call’

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.”

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).

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