Court Asks Fed To Disclose Records Of $2 Trillion U.S. Loan Program Launched After Lehman Collapse (OPY)

Bloomberg reports that the Federal Reserve has been asked by the U.S. Court of Appeals in Manhattan to disclose the records of its $2 trillion U.S. loan program launched during the financial crisis. The court’s ruling supports a decision given by a lower-court judge in August, ordering that Fed must release information on bailout records.

The Federal Reserve, in its argument, has said that if it disclosed the bailout records, it could cause borrowers “severe and irreparable competitive injury” and would discourage them in the future to take the Fed’s assistance, if in case they needed one. However, the Fed’s argument has been dismissed by a panel of three judges on the appeals court. Dennis Jacobs, U.S. Circuit Chief Judge, wrote, “The U.S. Freedom of Information Act, or FOIA sets forth no basis for the exemption the Board asks us to read into it. If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”

The Fed may appeal to the full appeals court to reverse the decision. However, if it does not appeal or the ruling is not reversed and if the Fed has to disclose the records then it might lead to devastating results. According to Chris Kotowski, a banking analyst at Oppenheimer (NYSE: OPY), the demand for disclosure of banks that had taken Fed’s assistance could result in a “death sentence” for them. He said. “Whenever the Fed extends funds to a bank, it should be disclosed in private to the Congressional oversight committees, but to release it to the public I think would be a horrific mistake. It would stigmatize the banks, it would lead to all kinds of second-guessing of the Fed, and I don’t see what public purpose is served by it.”

Senator Bernie Sanders said that the court’s ruling was a victory for taxpayers. He said, “This money does not belong to the Federal Reserve. It belongs to the American people, and the American people have a right to know where more than $2 trillion of their money has gone.” Meanwhile, Fed spokesman David Skidmore said that the Fed was reviewing the court’s decision and looking at different options to appeal.

The appeal to disclose records was launched by Bloomberg LP, parent company of Bloomberg News, with a lawsuit in November 2008 after the Fed refused to disclose the names of the firms that it lent to during the financial crisis.