Fed won’t appeal order to reveal crisis loans
Big banks ask highest court to keep files sealed
WASHINGTON — The Federal Reserve won’t join a group of the largest commercial banks in asking the Supreme Court to let the government withhold details of emergency loans made to financial firms in 2008.
Its decision not to appeal makes it less likely the high court will hear the case, said Tom Goldstein, a Washington lawyer whose Scotusblog website tracks the court.
The Clearing House Association, a group of the biggest banks, filed the appeal yesterday. A lower court’s order requiring disclosure remains on hold until the Supreme Court acts.
Kit Wheatley, an attorney for the Fed, confirmed the central bank won’t join the appeal.
The bank group is appealing a federal judge’s August 2009 ruling requiring the Fed to disclose records of its emergency lending. Bloomberg LP, the parent company of Bloomberg News, sued for the release of the documents under the Freedom of Information Act.
The central bank has never disclosed borrowers’ identities since the creation in 1914 of its Discount Window lending program, which provides short-term funding to financial institutions.
“Disclosure of this information threatens to harm the borrowing banks by allowing the public to observe their borrowing patterns during the recent financial crisis and draw inferences — whether justified or not — about their current financial conditions,’’ the Clearing House said in its appeal.
The Fed’s emergency programs would be harmed if it is forced to disclose lending records, the group said in a statement yesterday. Unless the ruling is overturned, businesses “may decline to participate in these programs, possibly impairing the federal government’s ability to act effectively in times of crisis.’’
“Greater transparency results in more accountability, and the banks’ resistance continues to engender suspicion among taxpayers about the bailouts,’’ said Matthew Winkler, Bloomberg News editor in chief. “The banks’ move to appeal will deepen the public’s skepticism and defend a position that every other court has disagreed with. The public has the right to know.’’
The justices may say as early as mid-December whether they will take up the case. If so, they would hear arguments next year and probably rule by July.
The central bank’s decision not to appeal undermines a central argument against disclosure, said Simon Johnson, a finance professor at the Massachusetts Institute of Technology and a former chief economist at the International Monetary Fund. “The banks are on their own. Their appeal without the Fed makes it clear that system stability issues are not at stake,’’ said Johnson, a Bloomberg contributor.
The fact the banks appealed while the Fed did not “demonstrates the desperation of the banks to hide their true condition during the crisis,’’ said Joshua Rosner, managing director of Graham Fisher, an investment advisory firm in New York.
The Wall Street Reform and Consumer Protection Act mandates a one-time audit of the Fed as well as the release of details on borrowers from Fed emergency programs. Discount Window loans made after July 21, 2010, would have to be released following a two-year lag.