Supreme Court forces Fed to fess up about discount window loans
The Federal Reserve is being forced to release details about emergency loans made to Wall Street banks during the financial crisis of 2008. The Supreme Court on Monday sided with a reporter from Bloomberg News who sued to force the Fed to reveal the Wall Street banks that borrowed from a lending program called the “discount window.” Monday’s Supreme Court ruling adds discount window data to information about six other bank bailout programs Congress required the Fed to disclose in December.
Opening the discount window
The Dodd-Frank financial reform bill required The Fed to reveaal details about the $3.5 trillion Wall Street bank bailout of 2008; however, information about the discount window was not part of that disclosure. Using the Freedom of Information Act, Bloomberg News filed a request for discount window data in 2008 and the Fed said no. In 2009 a trial court ruled in Bloomberg’s favor and the Fed appealed. A federal appeals court upheld the ruling, which was appealed by the Clearing House Association, a trade group that represents 10 of the largest banks in the U.S. Monday’s Supreme Court decision upholds the ruling once again, which requires the Fed to release details about the discount window within five days. It is the first time the Fed will release confidential information about the discount window since the program began in 1913.
Looking through the discount window
During the financial crisis, the Fed reduced the discount rate, lowered the primary credit rate and extended the maximum term from overnight to ninety days in the discount window. The documents that must be released include the names of banks and the amounts borrowed through the discount window in April and May, 2008. As the financial services industry trumpets its government-backed return to profitability for investors, the discount window data could embarrass some of the biggest Wall Street banks. If the public knows how much Wall Street had to depend on government bailouts to survive the financial crisis, it might affect investor perception about the leadership of the banks that needed help and how that could affect their future financial condition.
Wall Street wins when losing, again
There may have been something about the discount window loans made in April and May 2008 that Wall Street desperately wanted to keep secret. The Clearing House Association said releasing discount window data would make banks think twice about seeking government bailouts in the future. But even though the Supreme Court upheld Bloomberg’s case, Wall Street lawyers managed to delay the release of discount window data for more that two years. The Dodd-Frank financial reform bill requires the Fed to release data on discount window loans made after July 21, 2010, but only after a two year grace period.