Sunday, August 30, 2009

Banker Jekyll Will Hyde Your Money - 2

In a previous post the stage was set for a series of posts concerning the Federal Reserve Board's (the "Board") refusal to honour a Freedom of Information Act ("FOIA") request made by Bloomberg L.P., and the subsequent lawsuit.

It was pointed out in that original post that subsequent posts would deal with the specific issues of the case.

Let's let Chief Judge Preska explain the fundamentals of the case:
This action concerns whether the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552, compels the Board of Governors of the Federal Reserve System (the "Board"), when responding to FOIA requests, to search for records held at the Federal Reserve Bank of New York ("FRBNY") and the applicability of FOIA Exemptions 4 and 5 to certain records currently in the Board's possession. This dispute first arose when Bloomberg L.P. ("Bloomberg") reporters Mark Pittman and Craig Torres each submitted FOIA requests (the "FOIA Requests") to the Board requesting information about the Federal Reserve System's extraordinary actions taken in early 2008, during one of the worst financial crises in the history of this nation.
(Order and Opinion, Preska J., Federal District Court, Southern District of New York (Manhattan), 8/24/09, page 1). In layman's terms Bloomberg felt that this information should be available to the public since public money is being used, but the Board (like Dick Cheney on public energy policy) felt that the people did not need to know because they would panic.

Street rumour on the internet has it that the Federal Reserve Board is a private entity.

So, in this post we will dispense with that notion, using the judge's factual record.

Some do not get the obvious reality that private entities are not subject to federal FOIA requests, and the case would have failed on those grounds alone had a private party been sued under FOIA.

The judge did the homework and so we can all benefit from the discussion of the Board that was provided in the opinion:
A brief overview of the Federal Reserve System structure is helpful for understanding the circumstances of this action. The Federal Reserve System is the Central Bank of the United States. It is composed of the Board, located in Washington, D.C., and the twelve regional Federal Reserve Banks (the "FRBs"). The Federal Reserve System: Purposes and Functions 3 (9th ed., June 2005) [hereinafter P&F]. Collectively, the Board and the FRBs fulfil the four overriding purposes of the Federal Reserve System: conducting the nation's monetary policy, supervising and regulating banking institutions, maintaining the stability of financial systems and markets, and providing financial services to major financial actors. See id. at 1-2. The Federal Reserve System considers itself to be an independent central bank because its decisions do not require ratification by the President or executive branch officials. Id at 3. The system is, however, subject to oversight by congress. Id.

While together the Board and the FRBs comprise the Federal Reserve System, they have independent mandates and responsibilities. The Board is a federal agency tasked with, inter alia, supervising or regulating the operations of the FRBs, reviewing and approving changes to interest rates charged by the FRBs and overseeing loans among and by the FRBs. Id. at 4; see also 12 U.S.C. § 248. An additional component of the Federal Reserve System is the Federal Open Market Committee ("FOMC"), a separate governmental agency that shares offices with the Board. See 12 U.S.C. § 263. The FOMC is made up of the members of the Board, the president of the FRBNY, and presidents of four other FRBs, who serve on a rotation basis. P&F at 3. "The FOMC oversees open market operations, which is the main tool used by the Federal Reserve to influence overall monetary and credit conditions." Id.

The FRBs, on the other had, are semi-autonomous institutions with private funding and independent corporate structures.[Fn 1: Statutes and regulations often refer to the FRBs as "fiscal agents" of the Government. See, e.g., 12 U.S.C. § 391; 31 C.F.R. § 210.7.] Congress chartered the FRBs and granted them distinct powers, apart from the powers granted to the Board, such as the power to sue and be sued in their own names, to make contracts, to appoint officers, hire and fire employees and prescribe bylaws through their boards of directors. See 12 U.S.C. §§ 341-361. FRBs do not receive appropriated funds from Congress but rather generate funds from stock issuances to depository institutions in their districts. See 12 U.S.C. §§ 222, 282, 321, 341. Each FRB has a nine member board of directors, six of whom are elected by shareholder banks within the FRB's district and three appointed by the Board. See 12 U.S.C. §§ 301-302. The FRBs' role within the Federal Reserve System is generally supportive of the Board, "carrying out a variety of System functions, including operating a nationwide payments system, distribution the nation's currency and coin, supervising and regulating member banks and bank holding companies, and serving as banker for the U.S. Treasury." P&F at 4. The FRBs give all revenue in excess of expenses to the U.S. Treasury. 12 U.S.C. § 289.

A central feature of the FRBs is their administration of the discount window lending program ("DW"), meant to relieve pressures on the interbank funds market and a means for providing emergency liquidity to qualifying depository institutions during times of systemic stress. (See Decl. of Susan E. McLaughlin ¶ 5.) "Access to discount window credit is established by rules set by the [Board], and loans are made at interest rates set by the [FRBs] and approved by the Board. Depository institutions decide to borrow based on the level of the lending rate and their liquidity needs." P&F at 31. While the Board regulates DB lending, see 12 U.S.C. § 347b, the Board has no input or involvement in the administration of specific DW loan requests. (Decl. of Susan E. McLaughlin ¶ 8.) FRBs publish DW interest rates, but information on the names of depository institution borrowers, collateral pledged by the borrowers, individual loan amounts, or the specific type of DB program borrowed from is not publicly disclosed. (Id. ¶ 9.) At least with respect to the FRBNY, loan and collateral documentation relating to each DW loan is maintained at the bank, and that information is maintained on a need-to-know basis. (Id.)
The Board is subject to the Freedom of Information Act, promulgates regulations regarding FOIA compliance, and maintains designated personnel to respond to FOIA requests. See 12 C.F.R. §§ 261.12-.17. The FOMC also considers itself a separate governmental agency for FOIA purposes and publishes FOIA regulations. See 12 U.S.C. § 263; 12 C.F.R. §§ 271.1-271.9.
(ibid, pages 1 - 7, emphasis added). This clears up the false notion promulgated by wackos on the Internet that the Federal Reserve System is a private entity.

As a matter of law it is a governmental agency subject to FOIA.

A following post will discuss what the court ordered the Federal Reserve System to disclose.

The next post in this series is here, the previous post in this series is here.

No comments:

Post a Comment