Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress
Bloomberg Markets reports on 29,000 pages of Federal Reserve documents obtained under the Freedom of Information Act and Fed records of more than 21,000 transactions. It states that the Fed and the largest banks fought for more than two years to keep borrower details secret, that the Fed committed $7.77 trillion in guarantees and lending limits as of March 2009, that borrowing peaked at $1.2 trillion on 5 December 2008, and that banks earned an estimated $13 billion from below-market rates. It quotes lawmakers who say they did not know the specifics and sets the lending beside bank lobbying against the 2010 bill to limit bank size. The piece combines Fed data, the court history, interviews with former officials and economists, and Bloomberg's own net-interest-margin calculation.
Who made it
- The authors are Bloomberg News reporters; the article ran in the January 2012 issue of Bloomberg Markets and online on 27-28 Nov 2011 (Black Vault repost of the text; byline and date line).
- Bloomberg L.P., the parent of Bloomberg News, was the plaintiff in the FOIA suit that produced the records. The article says so: 'Bloomberg LP, the parent of Bloomberg News, won a court case against the Fed and a group of the biggest U.S. banks' (section 'Change Their Votes').
- Neil Barofsky, quoted for the Tea Party and Occupy argument and the 'blocked accountability' line, is identified in the article as a former TARP special inspector general and a Bloomberg Television contributing editor.
Its claims checked against the record
9 claims checked:3 supported · 5 partly supported · 0 contradicted · 1 not in the record
A verdict rests on the documents named in its row.
| The work says | Verdict | What the record shows |
|---|---|---|
| The Fed and the biggest banks fought for more than two years to keep details of the emergency lending secret; Bloomberg won in court, and the Supreme Court declined the banks' appeal in March 2011. | Supported by the record | Bloomberg filed its requests on 7 April and 21 May 2008; the Board denied them (30 Sept and 9 Dec 2008, withholding 231 pages as Exemption 4 and 5 material) (Rule 56.1 response, Statements 1-2, 10). The district court entered judgment for Bloomberg on 24 Aug 2009; the Second Circuit affirmed on 19 Mar 2010 (601 F.3d 143, slip op. 1); rehearing en banc was denied on 20 Aug 2010 (SG brief, p. 9); the Court denied certiorari on 21 Mar 2011 (docket 10-543). The side that petitioned was the Clearing House Association; the Board's own brief opposed review. |
| The Fed argued that revealing borrower details would create a stigma and make needy institutions reluctant to borrow in the next crisis. | Supported by the record | The Board's filing says borrowers expect confidentiality 'because of the "stigma" associated with DW borrowing' (Rule 56.1 response, Statement 13). The Second Circuit records the Board's claimed harm as impairing 'its mission--to furnish critical infusions to distressed banks on a confidential basis,' called the arguments 'plausible, and forcefully made,' and held that Exemption 4 did not reach them: 'it should ask Congress to amend the statute.' Congress then did, in Dodd-Frank sec. 1103 (see claim 5). |
| The Fed never disclosed the details of the rescue to lawmakers or the public: it released lending data in aggregate form only, and which banks borrowed, when, how much and at what rate was kept from view. | Partly supported | The Board's own memo of 6 Dec 2011 says 'the names of the counterparties and borrowers from the emergency facilities were not immediately disclosed,' that borrower names, dates, rates and collateral for the emergency facilities and TAF were first posted on 1 Dec 2010, and that discount-window data followed on 31 Mar 2011. The same memo says every program was publicly announced, weekly balance-sheet totals and monthly reports to Congress carried aggregate and collateral data, and daily average borrowing was reported for the five largest, next five and remaining discount-window borrowers. GAO-11-696 n. 3 records that members of Congress had expressed concern that borrower names were kept confidential. The record shows programs and aggregates public and names withheld; 'secret' describes the names. |
| Senator Judd Gregg and Representative Barney Frank, both of whom handled TARP and Dodd-Frank, say they did not know the specifics, and Congress debated Dodd-Frank in 2010 without a full understanding of how deeply the banks depended on the Fed. | Partly supported | The two quotations are in the article only; no transcript or statement by either member was found. The documents show that Congress knew in 2010 that borrower names were withheld: sec. 1109(c) orders their publication by 1 Dec 2010 and GAO n. 3 says members had raised the confidentiality. The sentence about Congress's understanding of the banks' dependence is the article's inference. |
| Dodd-Frank required the Fed to release details of some emergency programs in December 2010 and mandated disclosure of discount-window borrowers after a two-year lag. | Supported by the record | Sec. 1109(c) required publication by 1 Dec 2010 of recipient, assistance type, amount, dates and terms for 1 Dec 2007 to 21 Jul 2010. New FRA sec. 11(s)(2) sets release one year after a facility's termination and, for covered transactions, 'the last day of the eighth calendar quarter' after the transaction. Sec. 11(s)(6) makes the information confidential for FOIA Exemption 3 until those dates. Section 11(s) covers transactions after enactment; the 2007-2010 discount-window names reached the public through the Bloomberg and Fox News judgments, released 31 Mar 2011 for 8 Aug 2007 to 1 Mar 2010 (Minneapolis Fed account). |
| The Fed committed $7.77 trillion as of March 2009 (guarantees plus lending limits), and the banks that needed it most required a combined $1.2 trillion on 5 December 2008. | Partly supported | The article defines the $7.77 trillion as 'guarantees and lending limits,' not loans; the Fed memo (p. 3) says total credit outstanding 'was never more than about $1.5 trillion' in December 2008, calls $7.7, $16 and $24 trillion estimates 'wildly inaccurate,' and notes TALF was authorized at $200 billion but never lent above $70 billion. GAO puts emergency-program loans at 'more than $1 trillion in late 2008.' The three peak figures (Bloomberg $1.2 trillion for the neediest banks, GAO over $1 trillion, Fed $1.5 trillion) fall in the same month on different measures. GAO's own Table 8 total of $16,115 billion is not term-adjusted, which is the double-counting the Fed describes. The article does not publish the components of the $7.77 trillion, and none of them was rebuilt here. |
| Banks reaped an estimated $13 billion of income by taking advantage of the Fed's below-market rates; the six largest banks' share was $4.8 billion, 23 percent of their combined net income while borrowing. | Not in the record | The figure is Bloomberg's estimate: tax-adjusted net interest margin times average Fed debt for 190 firms, 'assuming all of the bailout funds were invested at the margins reported.' The article states it is 'impossible to state the banks' exact profits or savings from their Fed loans because the numbers aren't disclosed.' The Fed memo says most facilities were priced at a penalty and 'did not provide a subsidy,' and puts the Fed's own interest income from the programs at about $20 billion. No document in the register records how any borrower invested the proceeds. JPMorgan's spokesman is quoted calling the calculation unfair because funds were likely invested short term. Record not produced. Each borrower's internal records of how it invested Fed proceeds are not published by the Fed or any regulator; the article states the numbers 'aren't disclosed' (Bloomberg, 27 Nov 2011, section 'Added Income'), and the Fed's 6 Dec 2011 memo disputes the estimate without producing them. |
| Bankers did not disclose the extent of their borrowing: Bank of America's CEO wrote on 26 Nov 2008 that the bank was among the strongest in the world while it owed the Fed $86 billion that day, and JPMorgan's CEO wrote on 26 Mar 2010 that the bank used the Term Auction Facility to 'motivate others,' without saying its TAF peak was $48 billion on 26 Feb 2009. | Partly supported | Summing the Fed's TAF rows (loan date through maturity, millions of dollars), loans to JPMorgan Chase Bank NA ($30,000 million) and Chase Bank USA NA ($18,000 million) outstanding on 26 Feb 2009 total $48,000 million, matching the article, and TAF began 20 Dec 2007. TAF loans to Bank of America, Merrill Lynch Bank USA and Countrywide Bank outstanding on 26 Nov 2008 total about $47,000 million; the $86 billion covers other facilities that were not checked. |
| Bernanke said in April 2009 that the Fed lent only to 'sound institutions,' although the Fed's internal assessments described at least Citigroup as 'marginal,' and the New York Fed told Citigroup's CEO on 14 Jan 2009 that its financial strength was 'superficial.' | Partly supported | The Fed memo concedes that 'in the handful of instances when discount window loans were extended to troubled institutions' it was 'in consultation with the Federal Deposit Insurance Corporation to facilitate a least-cost resolution.' GAO found Reserve Banks restricted TAF access for at least 30 institutions 'due to concerns about their financial condition,' so internal condition assessments existed. the Bernanke quotation and the Citigroup wording are unverified. |
What the record shows that it leaves out
- GAO had no authority to review discount-window loans made before the July 2010 enactment, so GAO-11-696 does not cover the lending that Bloomberg's suit concerned (GAO-11-696, p. 2). The article cites the GAO audit mandate but not that gap.
- GAO's term-adjusted Table 9 shows foreign banks among the largest borrowers in the broad-based programs: Royal Bank of Scotland $58 billion, Barclays $50 billion, UBS $35 billion and Deutsche Bank $30 billion, against Bank of America $67 billion and Citigroup $58 billion (GAO-11-696, p. 132). The article's framing is the six biggest U.S. banks.
- GAO found the Reserve Banks restricted TAF access for at least 30 institutions over financial-condition concerns, 8 of the 10 highest-value emergency-program vendor contracts were awarded noncompetitively, and JPMorgan Chase was both a borrower and a vendor while its CEO sat on the New York Fed board as a Class A director; it also found no evidence of systemic bias in favor of particular institutions (GAO-11-696, Highlights and pp. 80-81; exhibit Exhibit 784).
- The Fed's 6 Dec 2011 memo says the GAO 'confirmed... that not only were there no material issues with respect to the design, implementation and operation of the facilities.' GAO issued seven recommendations on conflict policies, documentation, noncompetitive contracting and risk tracking, and the Board's own FAQ summary says no conflicts were found (exhibit Exhibit 801; compare GAO-12-18, exhibit Exhibit 786).
- The Board's FOIA denial of 9 Dec 2008 also asserted that records held by the New York Fed are not Board records subject to FOIA; the Second Circuit left that question to the companion Fox News appeal and did not decide it in this case (S.D.N.Y. Rule 56.1 response, Statement 10; 601 F.3d 143, slip op. 6).
- The federal respondent told the Supreme Court that the Second Circuit erred on both Exemption 4 holdings and opposed review only because Dodd-Frank had mooted the emergency-facility part and set prospective release dates for the rest (SG brief in opposition, No. 10-543, pp. 11-12). The article reports that the Clearing House Association took the case to the Court, and does not report the Board's position.
- Dodd-Frank itself restricts future FOIA access: new FRA sec. 11(s)(6) makes borrower information confidential for Exemption 3 until the release date. The Fed inspector general's January 2013 study recommended no change, finding that neither the Board nor the FOMC had used the exemption between 21 Jul 2010 and 31 Oct 2012 (Board Report 2013-AA-B-001).
Documented efforts and withheld records
Each item is a documented act, with its source: an act against the work, its author or its sources, or the withholding of records on its subject. The list states what was done and does not state why.
- 2008-09-30; 2008-11-07. The Board of Governors denied Bloomberg's FOIA request of 7 Apr 2008 for Bear Stearns loan-collateral records on 30 Sept 2008, stating staff 'found no documents that are responsive,' and denied Bloomberg's appeal on 7 Nov 2008. Board of Governors, Rule 56.1 response, Bloomberg L.P. v. Board of Governors, S.D.N.Y. 08 Civ. 9595, doc. 25 (Bear Request section)
- 2008-06-19; 2008-12-09. The Board answered Bloomberg's 21 May 2008 request for loan records on 9 Dec 2008, after Bloomberg had sued, saying it held 231 responsive pages and withholding all of them under FOIA Exemptions 4 and 5, and asserting that records held by the New York Fed are not subject to FOIA; it had extended its response time on 19 June 2008. Board of Governors, Rule 56.1 response, S.D.N.Y. 08 Civ. 9595, doc. 25 (Statements 9-10)
- 2009-08-24 to 2010-03-19. After the district court's 24 Aug 2009 judgment for Bloomberg, the Board appealed to the Second Circuit, and the Clearing House Association (the banks' joint association) intervened and appealed; the court affirmed on 19 Mar 2010 and held the Board's mission-impairment ground is not an Exemption 4 basis. Bloomberg L.P. v. Board of Governors, 601 F.3d 143 (2d Cir.)
- 2010-05-03; 2010-08-20. The Board and the Clearing House Association petitioned for rehearing en banc on 3 May 2010; the Second Circuit denied the petitions on 20 Aug 2010. Brief for the Federal Respondent in Opposition, No. 10-543, p. 9
- 2010-10-26 to 2011-03-21. The Clearing House Association petitioned the Supreme Court for certiorari on 26 Oct 2010; the federal respondent filed on 18 Feb 2011 saying the Second Circuit erred on both Exemption 4 holdings and opposing review because of Dodd-Frank; the Court denied the petition on 21 Mar 2011, Justice Kagan taking no part. Supreme Court docket No. 10-543; SG brief in opposition
- 2010-07-21. Congress, in Dodd-Frank sec. 1103 (new Federal Reserve Act sec. 11(s)(6)), made borrower and counterparty information for discount-window lending and post-enactment open market transactions confidential, including under FOIA Exemption 3, until a mandatory release date of the eighth calendar quarter after the transaction (or one year after a facility terminates), unless the Chairman orders earlier release. Public Law 111-203, sec. 1103 (124 Stat. 2118-2119)
- 2010-12-01; 2011-03-31. The Fed released 2007-2010 discount-window borrower names, amounts and dates on 31 Mar 2011, ten days after certiorari was denied, after notifying each affected institution; borrower names for the emergency facilities and TAF had been withheld until 1 Dec 2010. Federal Reserve Bank of Minneapolis, 'Disclosing borrowing information'; Board memo of 6 Dec 2011, p. 2
- 2011-12-06. Chairman Bernanke sent letters to the Senate Banking Committee and House Financial Services Committee chairs and ranking members enclosing a Board staff memo, 'Correction of Recent Press Reports Regarding Federal Reserve Emergency Lending During the Financial Crisis,' stating that recent articles 'contained a variety of egregious errors and mistakes'; the letters do not name Bloomberg. Board of Governors letters and staff memo; NPR, 'Fed, Bloomberg Trade Jabs Over Recent Stories' (7 Dec 2011)
- 2011-12-06. Bloomberg News stated that it stood by its reporting and published a point-by-point response to the Fed memo (act by the work's own side). NPR, 'Fed, Bloomberg Trade Jabs Over Recent Stories'
Published responses
- Federal Reserve Board (Chairman Bernanke, letters of 6 Dec 2011 to the Senate Banking and House Financial Services leadership, enclosing a staff memo): Said recent articles 'contained a variety of egregious errors and mistakes,' that no lending program was kept secret, that total credit outstanding never exceeded about $1.5 trillion, that $7.7, $16 and $24 trillion figures were 'wildly inaccurate' double counts, that emergency lending earned about $20 billion in interest, and that the $13 billion estimate was wrong because facilities were priced at a penalty. The letter does not name Bloomberg.
- Bloomberg News (editor-in-chief Matthew Winkler, 6 Dec 2011): Stated 'Bloomberg stands by its reporting' and published a point-by-point reply: it used 'secret' because the Fed released outlines but not specifics, did not double count the $1.2 trillion peak, and reported $7.77 trillion as lent, spent or committed. Seen only through NPR's account; the Bloomberg page returned 403.
- William B. English, Fed Division of Monetary Affairs, in the article: Said the lending programs 'served to prevent a collapse of the financial system and to keep credit flowing to American families and businesses.'
- JPMorgan spokesman Howard Opinsky, in the article: Declined to comment on Dimon's statement and Fed borrowings; said the $13 billion method is unfair because funds were likely invested short term.
Where it connects
- The Central Bank: The chapter's emergency-lending record is the 2008-2011 withholding of borrower names, the court rulings, and the 1 Dec 2010 and 31 Mar 2011 releases that this article rests on.
- Managing the Narrative: The Board's 6 Dec 2011 letters and staff memo answering press coverage of its lending show an agency's documented response to reporting.
- The Return on Lobbying: The article's lobbying figures and the Brown-Kaufman vote concern the six banks' lobbying against size limits.