Truth would destroy U.S. economic system, Fed warns

Section:

Fed Urges Secrecy for Banks in Bailout Programs

By Jonathan Stempel
Reuters
Thursday, August 27, 2009

http://www.reuters.com/article/marketsNews/idINN2732083820090827?rpc=44

NEW YORK -- The U.S. Federal Reserve asked a federal judge not to enforce her order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received, saying such disclosure would threaten the companies and the economy.

The central bank filed its request on Wednesday, two days after Chief Judge Loretta Preska of the U.S. District Court in Manhattan ruled in favor of Bloomberg News, which had sought information under the federal Freedom of Information Act.

Preska said the Fed failed to show that revealing the names would stigmatize the banks and result in "imminent competitive harm." The Fed asked the judge not to require disclosure while it readies an appeal.

"Immediate release of these documents will cause irreparable harm to these institutions and to the board's ability to effectively manage the current, and any future, financial crisis," the central bank argued.

It added that the public interest favors a delay, citing a potential for "significant harms that could befall not only private companies, but the economy as a whole" if the information were disclosed.

Underlying this case and a similar one involving News Corp.'s Fox News Network LLC is a question of how much the public has a right to know about how the government is bailing out a financial system in a crisis.

The Clearing House Association LLC, which represents banks, in a separate filing supported the Fed's call for a delay. It said speculation that banks' liquidity is drying up could cause runs on deposits, and trading partners to demand collateral.

"Survival can depend on the ephemeral nature of public confidence," Clearing House general counsel Norman Nelson wrote. "Experience in the banking industry has shown that when customers and market participants hear negative rumors about a bank, negative consequences inevitably flow."

The Clearing House said its members include ABN Amro Holding NV, Bank of America Corp, Bank of New York Mellon Corp., Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co., UBS AG, U.S. Bancorp, and Wells Fargo & Co (WFC.N).

The case arose when two Bloomberg reporters submitted FOIA requests about actions the Fed took to shore up the financial system in 2007 and early 2008, including an expansion of lending programs and the sale of Bear Stearns Cos to JPMorgan.

The case is: Bloomberg LP v. Board of Governors of the Federal Reserve System, U.S. District Court, Southern District of New York (Manhattan), No. 08-9595.

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