Court orders Federal Reserve to disclose emergency loan details

Written by Bloomberg | Updated: Aug 27 2009, 02:45am hrs
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 US District Judge Loretta Preska ruled against the central bank on Monday, rejecting the argument that loan records arent 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 programmes, 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 November 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 Preskas ruling. Its one thing to say that the Federal Reserve is an independent institution. Its 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 programmes.

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 programmes were to be disclosed, Preska wrote. Conjecture, without evidence of imminent harm, simply fails to meet the boards burden of proof. David Skidmore, a Fed spokesman who said the boards staff was reviewing the 47-page ruling, declined to comment on whether the central bank would appeal.

Bloomberg said in the suit that US taxpayers need to know the terms of Fed lending because the public became an involuntary investor in the nations 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 US citizens dont have the right to know, said Matthew Winkler, the editor-in-chief of Bloomberg News. Were gratified the court is defending the publics right to know what is being done in the public interest.

The Feds balance sheet about doubled after lending standards were relaxed in the wake of the collapse of Lehman Brothers Holdings Inc on September 15, 2008. For the week ended August 19, Fed assets rose 2.3% to $2.06 trillion as it continued to buy mortgage-backed securities under a programme allowing the central bank to purchase non-government securities for the first time.

The US 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.