NEW YORK — The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever, a federal appeals court ruled Friday.
The U.S. Court of Appeals in Manhattan said the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Bros. Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.
The Fed had argued that disclosure of the documents threatens to stigmatize borrowers and cause them "severe and irreparable competitive injury," discouraging banks in distress from seeking help. A three-judge panel of the appeals court rejected that argument in a unanimous decision.
The U.S. Freedom of Information Act, or FOIA, "sets forth no basis for the exemption the Board asks us to read into it," U.S. Circuit Chief Judge Dennis Jacobs wrote. "If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute."
Bloomberg sued after the Fed refused to name the firms it lent to or disclose loan amounts or assets used as collateral under its lending programs. Most of the loans were made in response to the deepest financial crisis since the Great Depression.
Lawyers for Bloomberg argued in court that the public has the right to know basic information about the "unprecedented and highly controversial use" of public money.
The Fed may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court. But if today's ruling is upheld or not appealed by the Fed, it will have to disclose the records. That may lead to "catastrophic" results, including demands for the instant disclosure of banks seeking help from the Fed, resulting in a "death sentence" for such financial institutions, said Chris Kotowski, a bank analyst at Oppenheimer & Co. in New York.
Sen. Bernie Sanders, an independent from Vermont, said the decision was a "major victory" for U.S. taxpayers.
"This money does not belong to the Federal Reserve," Sanders said. "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."
The Fed is reviewing the decision and considering options for reconsideration or appeal, Fed spokesman David Skidmore said.
"We're obviously pleased with the court's decision, which is an important affirmation of the public's right to know what its government is up to," said Thomas Golden, a partner at New York-based Willkie Farr & Gallagher and Bloomberg's outside counsel.
The court was asked to decide whether loan records are covered by FOIA. Historically, the type of documents sought in the case have been protected from public disclosure because they might reveal competitive trade secrets.
The Fed had argued it could withhold the information under an exemption that allows federal agencies to refuse disclosure of "trade secrets and commercial or financial information obtained from a person and privileged or confidential."
The Fed's balance sheet debt doubled after lending standards were relaxed following Lehman's failure on Sept. 15, 2008. That year, the Fed began extending credit directly to companies that weren't banks for the first time since the 1930s. Total central bank lending exceeded $2 trillion for the first time on Nov. 6, 2008, reaching $2.14 trillion on Sept. 23, 2009.