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From Banking and Finance Law Daily, April 2, 2015

Fed need not reveal information on financial crisis loans

By Richard A. Roth, J.D.

Exceptions contained in the Freedom of Information Act permitted the Federal Reserve Board to refuse to disclose information about the emergency loans made by the Federal Reserve Bank of New York to bail out Bear Stearns and American International Group at the height of the financial crisis, a U.S. district court judge has decided. The judge agreed with the Fed’s rejection of a FOIA request filed by a college professor seeking the memoranda the Fed relied on to justify its lending and the spreadsheets describing the assets that secured the loans (Ball v. Board of Governors of the Federal Reserve System, March 31, 2015, Chutkan, T.).

According to the judge, a Johns Hopkins University economics professor filed a FOIA request seeking four documents:

  • the Fed staff’s legal memorandum to the Board of Governors on the New York Fed’s loan to finance JPMorgan Chase’s acquisition of Bear Stearns (the Maiden Lane Loan);

  • the spreadsheet that detailed the Bear Stearns assets that secured the Maiden Lane Loan;

  • the Fed staff’s memorandum on the New York Fed’s loan that bailed out AIG; and

  • the spreadsheet that detailed the AIG assets that secured the AIG loan.

The Fed considered and rejected the professor’s request, so he sued in an effort to have that rejection overturned.

Adequacy of search. Before deciding whether the documents were protected from disclosure, the judge had to consider whether the Fed’s search for documents had been adequate. The issue was whether it was sufficient for the Fed to search only its own records for information on the AIG loan collateral, or whether the Fed also was required to search the New York Fed’s records. More specifically, were the New York Fed’s files included within the files the Fed’s regulations defined as “Records of the Board”?

The judge began by noting that the Fed’s regulation was “confusingly drafted.” However, the central point was whether the document would have been created by the New York Fed when it was working “for or on behalf of” the Fed.

Using a narrower interpretation of “on behalf of” than was proposed by the professor, the judge decided the answer was “no.” “On behalf of” meant under authority delegated by the Fed, and the New York Fed used its own authority to make the AIG loan. Yes, the Fed did authorize the loan, the judge conceded, but it did not delegate to the New York Fed its own authority to act.

Fed’s administrative purposes. The Fed’s search was adequate for a second reason, the judge continued—the spreadsheet was not a record of the Fed because it was not a record the Fed would have kept at the New York Fed for administrative reasons. “Administrative reasons” referred to reasons such as examinations, supervision, examiner training, and legal activity. Tracking the collateral for emergency loans was not administrative.

Legal memoranda. The Fed cited three different FOIA exemptions for why it was not required to disclose the two legal memoranda that justified the loans. The judge concluded that FOIA Exemption 5, which covers documents “which would not be available by law to a party other than an agency in litigation” with the Fed, decided the issue. This exemption was in this case comparable to the executive deliberative process privilege.

The professor tried to avoid the exemption by characterizing the memoranda as the Fed’s “working law,” which would not be protected from disclosure. The working law doctrine says an agency’s documents that supply the basis for a policy the agency adopts are the agency’s working law and not protected from disclosure. The purpose is to avoid the possibility that an agency could develop a body of “secret law” that it relies on but does not reveal to the public.

The memoranda were more appropriately seen as advisory opinions and recommendations made by the Fed staff to their superiors to assist the superiors’ decision-making, the judge said. There was little reason to conclude the Fed had adopted the memoranda as its working law. The sole exception was testimony by the Fed’s General Counsel, Scott Alvarez, but that testimony was not strong enough.

Collateral spreadsheets. The spreadsheets that listed the collateral for the two loans were covered by FOIA Exemption 8, which protects examination, operating, or condition reports of a financial institution supervisory agency, the judge then determined. In doing so, he rejected the professor’s argument that the New York Fed was not a financial institution under FOIA.

“Financial institution” had a meaning broader than “bank,” according to the judge. Even if the definition were limited to traditional banks, the New York Fed was included as a bank by the Federal Reserve Act, and it engaged in many of the same activities as traditional banks, he pointed out.

The case is No. 13-cv-603 (TSC).

Attorneys: Adina Rosenbaum (Public Citizen Litigation Group) for Laurence M. Ball. Benton Gregory Peterson, U.S. Attorney's Office, for Board of Governors of the Federal Reserve System.

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