Posted by Joseph Y. Calhoun, III

Via Reuters:

The U.S. Second Circuit Court of Appeals on Friday ordered the Fed to release details of emergency lending programs it adopted starting in late 2007 to shore up the financial system and forestall a complete meltdown of global financial markets.

Bloomberg LP, the parent of Bloomberg News, and News Corp’s Fox News Network sought details of the central bank’s actions under the federal Freedom of Information Act, or FOIA, which requires government agencies to make documents public.

The Fed argued against disclosure, citing an exemption that it said allows federal agencies to refuse to disclose trade secrets and commercial or financial information.

It also contended that allowing disclosure of participants in the programs and the collateral they posted could cause “competitive and reputational harm,” perhaps triggering bank runs, and impede the central bank’s ability “to effectively manage the current, and any future, financial crisis.”

But giving the Fed power to deny disclosure because it thinks it best to do so “would undermine the basic policy that disclosure, not secrecy, is the dominant objective of,” Chief Judge Dennis Jacobs wrote for a three-judge panel.

“If the Board believes such an exemption would better serve the national interest,” he added, “it should ask Congress to amend the statute.”

Bloomberg had won its case at the district court level, while Fox News had lost its case. The Second Circuit ruling threw out the ruling against Fox and ordered a lower court judge to decide what materials must be disclosed.

I believe that one of the reasons interbank lending came to a halt in the fall of 2008 was that banks had no way to know which banks were solvent and which ones weren’t. That was a direct result of the Fed’s emergency lending programs so in my mind, the Fed was part of the problem not the solution. This ruling chips away a little of the immense power of the Fed and is a welcome development.

Steve Liesman just interviewed some schmuck from the Independent Community Bankers Association who claimed this was an awful ruling and that it could cause banks to fail if discount window borrowers identities were routinely disclosed. Sorry pal, but if a bank is borrowing from the discount window it has done something very, very wrong to its balance sheet and probably deserves to fail. It isn’t the disclosure of discount window borrowing that causes failure; its whatever you did that put the bank in a situation where borrowing from the discount window was necessary. I’ve got no sympathy for bankers who have screwed up their balance sheet and want to hide behind the Fed. Too bad, so sad. Let’em fail and move on.

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