Yesterday, the Washington Post and Bloomberg News both reported on the astronomical sum of money — the Post put it at almost $900 billion — that the Federal Reserve is quietly lending to banks and other financial institutions hit by the financial crisis.
Unlike with the $700 billion in bailout money allocated to the Treasury Department, the Fed won’t reveal basic details about the program: for instance, which institutions are getting that money, how much they’re getting, or which assets are being used as collateral on the loans.
Bloomberg News filed a Freedom of Information Act (FOIA) request, in order to pry loose the information, but the Fed responded that this was “confidential commercial information”, reports the Post, and argued that the Federal Reserve Bank of New York, which keeps the information, is not subject to FOIA. Bloomberg has now filed a federal lawsuit against the Fed.
Some in Congress are also concerned. Several members at a hearing of the House Financial Services Committee last week expressed skepticism about the lack of transparency. And a staffer for Rep. Scott Garrett (R-NJ), a member of the House financial services committee, told TPMmuckraker that the congressman will soon send a letter to Fed Chairman Ben Bernanke asking him to provide further details about the loans.
At that same hearing, Bernanke explained the reason for the Fed’s secrecy: “There’s a concern that if the name is put in the newspaper that such and such bank came to the Fed to borrow overnight for a good reason, that people might begin to worry: Is this bank credit-worthy?” he said. “And that might create a stigma, a problem, and might cause banks to be unwilling to borrow.”
Tim Yeager, a former economist at the Federal Reserve Bank of St. Louis, and now a professor of finance at the University of Arkansas, bolstered that view. He told TPMmuckraker that in normal times more disclosure makes sense, but that in times of crisis like this, “if word leaked out” that banks were going to the Fed to borrow money, “there could be a liquidity run.”
We’ve made calls to the House financial services and oversight committees, and the Senate banking and finance committees, to ask whether they have plans to look into the issue further, given the amount of taxpayer money at issue. We’ll let you know what we find out.