NEW YORK (Reuters) - The Federal Reserve has decided not to join major banks in asking the U.S. Supreme Court to let the central bank keep secret the details of its emergency lending programs during the financial crisis.
A group representing U.S. and European commercial banks on Tuesday appealed to the Supreme Court asking it not to force the Fed to disclose details of its bailouts, as a federal appeals court in New York had ordered in March.
The group said forcing disclosure could lead markets and customers to worry about banks’ health, jeopardizing their business prospects.
The Fed did not explain why it chose not to join the banks’ appeal. In a statement, it said it “will await a determination from the courts and will comply fully with any final order. The Federal Reserve remains committed to timely and responsible transparency of its operations.”
Bloomberg LP, the parent of Bloomberg News, and News Corp’s Fox News Network had sought bailout details under the federal Freedom of Information Act, which requires government agencies to make documents public.
The Supreme Court is expected in coming weeks to consider whether to review the unanimous March ruling by the 2nd U.S. Circuit Court of Appeals in New York ordering the Fed to release details of programs it adopted starting in late 2007 to shore up the financial system.
These programs, along with other measures to support the economy, more than doubled the central bank’s balance sheet to well over $2 trillion, a process that accelerated after Lehman Brothers Holdings Inc’s September 2008 collapse.
“The Fed has historically argued that you could have bank runs if you had disclosure, and that it did not want to enable these by having super-timely disclosure of problems,” said William Ford, a professor at Middle Tennessee State University and former president of the Federal Reserve bank in Atlanta. “But we’re already moving in the direction of full and immediate disclosure, quite aside from the legal battles.”
Walker Todd, research fellow at the American Institute for Economic Research and a former Fed legal officer in Cleveland and New York, said the banks group — the Clearing House Association LLC — might be more likely to have its appeal heard without the Fed’s involvement.
“Courts might be more sensitive to allegations of substantive and immediate harm coming from private parties than from a governmental agency such as the Fed,” he said.
In its March ruling, the Second Circuit had ordered the disclosure of borrowers’ names, loan amounts and loan dates for transactions at the Fed’s discount window and from its emergency lending facilities.
Chief Judge Dennis Jacobs wrote for a three-judge panel that to let the Fed deny disclosure because it thinks it best “would undermine the basic policy that disclosure, not secrecy, is the dominant objective of (FOIA).”
The Clearing House, in its papers filed Tuesday, argued that this struck an improper balance.
It said disclosure may harm 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 discount window is the program through which the 12 Federal Reserve Banks made short-term loans.
Clearing House members include Bank of America Corp, Bank of New York Mellon Corp, Citigroup Inc, Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co, UBS AG, US Bancorp and Wells Fargo & Co.
The case is The Clearing House Association LLC v. Bloomberg LP et al, U.S. Supreme Court.
Reporting by Jonathan Stempel in New York; Additional reporting by Pedro Nicolaci da Costa and Jeremy Pelofsky in Washington, D.C.; Editing by Gary Hill