POGO has been closely following this case over the past few months because it concerns one of the major unsolved mysteries from the financial crisis: which banks benefited from trillions of dollars in discount and emergency lending from the Fed?

Last Friday, the full U.S. Court of Appeals in New York declined to reconsider its decision requiring the Fed to comply with Bloomberg’s FOIA request for records on the banks that accessed some of the Fed’s lending facilities in the early stages of the financial crisis. This latest ruling now sets the stage for a possible showdown before the Supreme Court .

As the debate continues over whether to give the Securities and Exchange Commission (SEC) more authority to withhold records under the Freedom of Information Act (FOIA), there was an important development last week on a separate FOIA controversy involving the Federal Reserve Board and its emergency bailout programs.

When people talk about the "bailout," they're typically referring to the Troubled Asset Relief Program (TARP) authorized by Congress in the fall of 2008 and managed by the Treasury Department. But emergency lending provided by the Fed was an indispensable part of the government's efforts to stabilize the financial system. (Section 3 of the Special Inspector General for the Troubled Asset Relief Program’s July 2009 report to Congress provides a good overview of the Fed's role in providing financial assistance outside of TARP).

The Fed’s Discount Window (DW) is a long-standing program through which the 12 regional Federal Reserve Banks (FRBs) lend short-term money directly to eligible financial institutions. The DW can also serve as an emergency source of liquidity for depository institutions that lack other options.

In December 2007, in the early stages of the financial crisis, the Federal Reserve Board established a temporary Term Auction Facility (TAF), a form of DW lending that provided longer-term loans to depository institutions through the 12 FRBs. A few months later, as the crisis worsened, the Board authorized the Federal Reserve Bank of New York to lend to primary dealers (certain banks and broker-dealers) through the Primary Dealer Credit Facility (PDCF) and the Term Securities Lending Facility (TSLF).

FOIA requests filed by Bloomberg in April and May 2008 sought detailed, transaction-level information on the recipients and terms of the loans provided under the DW and the three emergency lending programs (the TAF, PDCF, and TSLF). In December 2008, the Federal Reserve Board largely rejected Bloomberg’s request, arguing that most of the responsive records in its possession were protected under FOIA Exemptions 4 and 5, and that additional records could not be searched because they were in possession of the New York Fed, which is technically not a governmental entity subject to FOIA.

In August 2009, U.S. District Judge Loretta Preska ruled that the Federal Reserve Board’s records were not covered by FOIA Exemptions 4 and 5, and ordered the Board to search for additional responsive records at the New York Fed.

One of the Board’s main arguments was that disclosing the names of the banks would cast a "stigma" on them, raising concerns that "market participants, including financial analysts, customers, and competitors of the borrowing institution, would draw adverse conclusions about the borrowing depository institution that were based on conjecture and speculation." Judge Preska rejected this argument, ruling that "conjecture, without evidence of imminent harm," was not a good enough reason to withhold the records.

At that point, the Clearing House—a group of banks including Bank of America, Citibank, JPMorgan, and Wells Fargo—entered the case as a defendant, and joined the Board in appealing Judge Preska’s ruling. The Clearing House's appeal raised concerns that disclosing the names of the borrowers would deter banks from seeking loans in times of distress, and would therefore impair the Fed’s ability to respond to future financial crises. The Clearing House also argued that “no less than six major U.S. financial institutions failed or nearly failed following rumors or reports of their financial weakness” during the financial crisis (although in the case of firms like Bear Stearns and Lehman Brothers, there’s plenty of evidence to suggest that their excessive leverage and risk-taking had much more to do with their collapse than any marketplace “rumors.”)

In March 2010, the U.S. Court of Appeals for the Second Circuit rejected the arguments put forth by the Federal Reserve Board and the Clearing House, and upheld the lower court’s ruling. Last week, the Court denied a request from the Fed to review the March decision. The Fed is now seeking to delay the release of the records while it considers appealing the case to the Supreme Court.

We recognize that disclosing the names of the borrowers would be a big departure from the Fed’s long-standing policies, and could make banks more hesitant to seek the Fed’s assistance in the future. But in the spirit of creating an "unprecedented level of openness" in government, we urge the Fed to consider the public’s interest in learning about one of the most significant actions taken by the federal government in response to the financial crisis. A group of media organizations that signed on to the case in support of Bloomberg wrote that "without this information, it is impossible to monitor the Board’s actions, and FOIA's core purpose is defeated."

In the meantime, the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act contains several provisions that will require more public transparency from the Fed. For instance, Section 1103 requires the Fed to disclose key information on firms that participate in the Discount Window programs and emergency lending facilities moving forward, albeit with a 1-2 year delay in releasing the information (a provision introduced by Senator Patrick Leahy (D-VT) will require the Fed Inspector General to study the effect of withholding this information under FOIA until the mandatory release date). And Section 1109, introduced by Senator Bernie Sanders (I-VT), will require the Fed to post online some key information on firms that accessed the emergency lending facilities (but not the Discount Window) from December 1, 2007 through July 2010.

One way or another, the Fed’s days of unchallenged secrecy appear to be numbered.

-- Michael Smallberg