Public wins information, banks win delay

A week after the Federal Reserve released information from 2007-10 naming the banks which used its “main emergency aid program” (the “discount window“) at the conclusion of two FOIA requests/litigation, the public continues to learn more about how the program worked:

• March 31: The Associated Press reported that most of the emergency lending took place in September/October 2008, much of the lending was repaid the next day, and the high-water mark was around $110 billion. The AP explained that the Fed had admitted details of substantial lending in December 2010, but the agency had refused to identify which commercial banks had borrowed.
• March 31: Fox Business used the newly-released data to flesh out its summary of borrowing at the discount window (and the other ten Fed-based “special lending facilities”), from Goldman Sachs Group Inc. and JPMorgan Chase & Co. to… Harley Davidson. (The Wall Street Journal also assembled a list of lending programs last winter; at the time, it reported the Fed was still holding $2.3 trillion in “assets.”)
• March 31: Senator Bernie Sanders (I-VT) noted that JPMorgan Chase CEO Jamie Dimon was pulling double duty at one point during the crisis, borrowing $313 billion in April 2008 at the same time he was serving on the board of directors of the New York Fed. (Sanders also mentioned his amendment directing the Government Accountability Office to audit the Fed, a process slated to be made public in July.)
• March 31: The New York Times connected some borrowing to bank failures, flagging substantial loans to Wachovia and Washington Mutual before they were subsumed into Wells Fargo and JPMorgan Chase, respectively.
• March 31: Bloomberg juxtaposed JPMorgan Chase CEO Jamie Dimon’s statements downplaying the bank’s borrowing with details of its loans totaling “at least $5.9 billion… over six months during the height of the financial crisis.” (Dimon had said, “I think it will make it harder for people to use the discount window in the future” and “We never intend to use the discount window.”)
• April 1: Bloomberg highlighted billions of dollars in loans in 2008-10 to Arab Banking Corp., which was partially-owned (29%) by the Libyan state at the time, which would increase its stake to 59% by December 2010. (This seems parallel to recent American-Libyan interactions, such as President Obama’s executive order #13566 (non-gov link) and a modification of sorts (h/t Rolling Stone.)
• April 2: The New York Times noted that much of the “discount window” borrowing involved foreign banks, and that U.S. financial officials were publicly quite chipper despite ominous increases in lending in mid-2007.
• April 6: Bloomberg pointed out that when the Fed supported the largest foreign-bank beneficiary of the program, Dexia, it also supported American municipal financial authorities – though two Dexia subsidiaries have been named in a criminal antitrust case alleging bid-rigging by over a dozen financial firms, to the detriment of state and local governments.
• However, Bloomberg also noted that generally, “the Fed won’t disclose the collateral it accepted, which would reveal the risks it took.” Though Bloomberg did catch the Fed making about $155 billion in loans in exchange for collateral nominally valued around $164 billion, much of dubious value, on September 29, 2008. (For a sense of the scale of the financial assistance, consider that a March 2009 Bloomberg article flagged the commitment (of $12.8 trillion at the time) as “approach[ing]” America’s 2008 GDP ($14.2 trillion), and a December 2010 CNN article described “a special loan program” as providing $9 trillion in “emergency overnight loans”)

The information – 894 PDF files, consisting of more than 29,000 pages – came to light after Bloomberg LP (parent of Bloomberg News) and News Corp. (parent of Fox News Network) had used FOIA to request records from the discount window and other emergency programs for April-May 2008 and August 2007-March 2010, respectively. The Fed rejected those requests, claiming the information deserved protection as confidential commercial/financial information under FOIA’s Exemption Four. However, federal courts repeatedly rejected the Fed’s arguments, and on March 21, 2011, the Supreme Court declined to grant certiorari to an appeal by a banking-industry consortium, the Clearing House Association LLC.

In this regard, the Supreme Court joined Congress, journalists, and transparency advocates in supporting an eventual sunset for confidentiality claims by banks. Banks had argued that the release of such information would “allow[] the public to observe [banks’] borrowing patterns during the recent financial crisis and draw inferences — whether justified or not — about their current financial conditions,” the Clearing House had claimed. And for almost a hundred years, the Fed had been able to keep such information secret. Even the 2010 Dodd-Frank financial regulation bill only mandated disclosure of discount-window loans made after its enactment on July 21, 2010. In fact, section 1103(b) (codified at 12 U.S.C. 248(s)) set the delay at eight full quarters later, giving borrowing banks two entire years of secrecy after the quarter in which borrowing occurred. (Bloomberg also noted that even Dodd-Frank only required disclosure of post-enactment discount-window information.)

Coincidentally, the FOIA request/litigation process ran its course in a little over two years, so one might say it was a wash. However, we would note that this litigation was quicker than usual, initiated by media entities that could afford to litigate, riding a wave of public curiosity about dramatic economic changes and secrets, and encountered only success at every judicial turn. Many FOIA requesters are not so lucky – and many similarly valuable elements of information are not as likely to reach the public.