Supreme Court, U.S. MOTION FILED FEB 1 8 2011 William K. Suter, No. 10-543 IN THE ~upt:eme ~out’t of t~e ~t~tel~ ~tate~ THE CLEARING HOUSE ASSOCIATION L.L.C., Petitioner, BLOOMBERG L.P. and THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Respondents. On Petition For Writ of Certiorari to the United States Court of Appeals for the Second Circuit MOTION FOR LEAVE TO FILE OUT OF TIME BRIEF OF AMERICAN BANKERS ASSOCIATION AS AMICUS CURIAE IN SUPPORT OF PETITIONER C. DAWN CAUSEY GREGORY F. TAYLOR Counsel of Record AMERICAN BANKERS ASSOCIATION 1120 Connecticut Ave., N.W. Washington, D.C. 20036 202-663-5028 [email protected]Attorneys for Amicus Curiae The American Bankers Association
Transcript
Supreme Court, U.S.MOTION FILED
FEB 1 8 2011William K. Suter,
No. 10-543
IN THE
~upt:eme ~out’t of t~e ~t~tel~ ~tate~
THE CLEARING HOUSE ASSOCIATION L.L.C.,
Petitioner,
BLOOMBERG L.P. and THE BOARD OF GOVERNORSOF THE FEDERAL RESERVE SYSTEM,
Respondents.
On Petition For Writ of Certiorari to the United StatesCourt of Appeals for the Second Circuit
MOTION FOR LEAVE TO FILE OUT OF TIME BRIEFOF AMERICAN BANKERS ASSOCIATION AS
AMICUS CURIAE IN SUPPORT OF PETITIONER
C. DAWN CAUSEYGREGORY F. TAYLORCounsel of RecordAMERICAN BANKERSASSOCIATION1120 Connecticut Ave., N.W.Washington, D.C. [email protected] for Amicus CuriaeThe American Bankers Association
MOTION FOR LEAVE TO FILE
.Amicus Curiae American BankersAssociation (ABA) respectfully submits this motionpursuant to Supreme Court Rule 37.2(b) seekingleave to file the attached brief in support ofPetitioner the Clearing House Association, L.L.C.,and states as follows:
The ABA is the principal national tradeassociation of the banking industry in the UnitedStates. Its members are located in each of the 50States and the District of Columbia. ABA membershold a substantial majority of domestic assets of thebanking industry of the United States.
The ABA and its members support theClearing House Association’s petition because theyhave a direct interest in the outcome of this case.FOIA provides the framework within which thepublic ~nay request the release of information fromthe various agencies of the federal government,including the agencies and departments that havebeen tasked with the oversight and regulation of thenation’s banking industry. The Second Circuit’sopinion interprets FOIA in a manner that, ifallowed to stand, could serve as precedent to compelthe public release of heretofore confidentialdocuments or information in the possession offederal bank regulators. This result is at odds withthe purpose of the exemptions to disclose that wereenacted as an integral part of FOIA and, if allowedto stand, the precedent could prove damaging toboth the.. public interest and the interest of ABA’smembers.
ii
The proposed amicus brief by the ABA meetsthe standards for acceptance set by Rule 37 as itwill draw the Court’s attention to relevant matternot already brought to the Court’s addition by theparties. The ABA brief summarizes in a sufficientfashion the reasons behind the confidentialtreatment of sensitive Federal Reserve documentsand the deleterious impact that the release of suchmaterials could have upon the public’s confidence inindividual banking institutions.
All parties, with the sole exception ofBloomberg, L.P., have consented to the filing of anamicus by the ABA.
Wherefore, amicus American BankersAssociation seeks the Court’s leave to file theattached brief in support of Petitioner the ClearingHouse Association L.L.C.
C. Dawn CauseyGREGORY F. TAYLORAMERICAN BANKERSASSOCIATION1120 Connecticut Ave, N.W.Washington, D.C. 20036202 663"5028gtavlor~aba.comAttorneys for Amicus CuriaeThe American BankersAssoeiation
iii
TABLE OF CONTENTS
MOTION FOR LEAVE TO FILE ...............i
TABLE OF AUTHORITIES ..................iv
INTRODUCTION .......................... 1
STATEMENT OF INTEREST OF AMICUSCURIAE ............................. 5
ARGUMENT .............................. 6
A. FOIA Should Not Be Interpreted In AManner That Will Undermine TheAcknowledged Purpose Of Exemption
B. The Transactions In Question WereUndertaken Based On The Well-Settled Expectation That They WouldRemain Confidential ............... 13
17CONCLUSION ...........................
iv
TABLE OF AUTHORITIES
Cases
639 F. Supp. 2d 384, 401 (S.D.N.Y. 2009) ..............13
Abrams v. U.~. Dept. of Treasury, 243 Fed. Appx. 4(5th Cir. 2007) ................................................ 11
Ben S. Bernanke, Chairman, Bd. of Governors of theFed. Reserve Sys., Remarks Via Satellite atthe Federal Reserve Bank o£AtlantaFinancial Markets Conference: LiquidityProvision by the Federal Reserve (May 13,2008) ("Liquidity Provision by the FederalReserve") ........................................................ 15
BrianF. Madigan & William R. Nelson, ProposedRevision to the Federal Reserve’s DiscountWindow Lending Program, 88 Fed. Res. Bull.3113 (2002) ...................................................... 14
FDIC, Bank Failures In Brief,http://www.fdic.gov/bank/historical/bank/2009/ (retrieved on December 15, 2010) ................. 1
Federal Deposit Insurance Corporation, History o£the Eighties---Lessons £or the Future: AnExamination o£ the Banking Crisis o£ the
vi
1980s and Esrl~v 1990s (1997), available athttp://www.fdic.gov/bank/historical/history/337_378.pdf ......................................................... 3
Federal Deposit Insurance Corporation, ManagingThe Crisis: the FDIC and RTC Experience(1998), available athttp ://www.fdic. gov/bank/historieal/managing/history2-04.pdf andhttp://www.fdie.gov/bank/historieal/managing/history2-06.pdf ................................................ 3
Grind, Kirsten, The Downfall of WashingtonMutual, Puget Sound Business Journal(September 25, 2009), available athttp://seattle.bizjournals.eom/seattle/stories/2009/09/28/storyl.html?page= 1 ........................ 3
H. Rep. No. 1497, 89th Congress, 2nd Session,House Committee on Government Operations(May 9, 1966) (S. 1160) ................................... 8
LOHR, STEVE, WHEN A BIG BANK WHEN A BIG BANK
WENT UNDER, U.S. PRESENCE STEMMED THE
PANIC, NEW YORK TIMES (FEBRUARY 18, 1991).
OTS Fact Sheet on Washington Mutual Bank,available athttp://files.ots.treas.gov/730021.pdF, ..............3
INTRODUCTION1
L. William Seidman, the former Chairman ofthe Federal Deposit Insurance Corporation (FDIC),once observed that "[o]ur whole financial systemruns o:n confidence and not much else when you getdown to it... [w]hat we’ve learned is that whenconfidence erodes, it erodes very quickly.’’2 Recentevents have amply demonstrated the essential truthof Chairman Seidman’s remarks. Over the past 24months the nation has watched as the number ofbank failures has climbed to levels not seen sincethe thrift and banking crisis of the late 1980’s. In2009 alone, the FDIC was appointed receiver for 140insured depository institutions.3 Yet despite theincrease in the number of failures within the
~ Pursuant to Rule 37.2(a), all counsel of record received noticeof intent to file the amicus brief at least 10 days prior to itsfiling. Counsel for The Clearing House Association and theSolicitor General have consented to the filing of this amicus.Counsel for Bloomberg, however, does not consent. Counselcertifies that no counsel for any party authored this briefeither in whole or in part, and no person or entity, other thanABA and its members, made a monetary contribution to thepreparat~.on or submission of the brief.2 Lohr, Steve, When A Big Bank Went Under, U.~. Presence
Stemmed the Panic, New York Times (February 18, 1991).Available, athttp://www.nytimes.eom/1991/02/18/business/when-a-big-bank-went-under-us-presenee-stemmed-the-panie.html
F:DIC, Bank Failures In Brief,http://www.fdie.gov/bank/historieal/bank/2009/ (retrieved onDecember 15, 2010).
2
banking industry, the public’s fundamentalconfidence in the depository institutions with whichthey entrust their funds has remained intact.
Unlike the Great Depression of the 1930’s orearlier bank "panics," the country has largely beenspared images of frightened depositors lining upoutside of financial institutions in order to withdrawtheir money, despite the troubled economy. Thisreassuring evidence of the public’s belief in thefundamental resiliency of our nation’s bankingsystem should not be the cause for complacency,however. Maintaining public confidence in ournation’s banking institutions is just as importantnow as it has been in the past. In the isolatedinstances where depositor or investor confidence inan institution has eroded, the correctness ofChairman Seidman’s observations has beenvalidated.
Very recent history amply demonstrates that,despite the existence of federal deposit insuranceand other systemic protections, bank "runs" can stilloccur; depositors and investors will still fleeinstitutions that they believe to be moribund, inmost cases making the eventual collapse of theinstitution inevitable.~ Bank runs have played a
4 Of the ten largest banks/thrifts (based on asset size) to
either receive FDIC open bank assistance or to be placed inreceivership, depositor runs occurred at five institutions:
¯ Washington Mutual Bank (the largest institutionhandled by the FDIC to date),
¯ Continental Illinois National Bank & Trust (open bankassistance)
(continued...)
3
role in two of the three largest failures in ourhistory - IndyMac Bank in California andWashington Mutual in the state of Washington.Both collapses were precipitated in part by a loss ofpublic confidence, fueled by negative press reports,which resulted in massive withdrawals of funds bydepositors. Both failures are of recent vintage, eachoccurring in 2008.
While depositor runs are thankfully rare evenin these financially difficult times, it is neverthelessappropriate to consider the potential fallout thatcan result when agencies of the federal governmentare compelled to disclose documents andinformation that may, in the public’s mind, be used
(...continued)¯ IndyMac Federal Savings Bank¯ First Republic Bank - Dallas N.A. (open bank
assistance),¯ Bank of New England N.A.
See, FDIC’s Historical Statistics on Banking (HSOB)," OTSFact Sheet on Washington Mutual Bank, available athttp://files.ots.treas.gov/730021.pdi;, Grind, Kirsten, TheDownfall of Washington Mutual, Puget Sound BusinessJournal (September 25, 2009), available athttp://seattle.biziournals.con~seattle/stories/2009/O9/28/story1.html?page=l; Federal Deposit Insurance Corporation,Managing The Crisis: the FDIC and RTC Experience at 547,598 (1998), available athttp://www.fdie.gov/bank/historieal/managing/history2-04.pdfand http://www.fdie.gov/bank/historieaYmanaging/history2-06.ndf; Federal Deposit Insurance Corporation, History of theEighties---Lessons for the Future: An Examination of theBanking Crisis of the 1980s and Early 1990s, at 375 (1997),available athttp://www.fdie.gov/bank/historieal/history/337 378.pdf.
4
to infer the health, prospects, and borrowingactivities of specific financial institutions. Bankregulators are in a unique and powerful position toshape the public’s perception of the institutions thatthey regulate, and the process of effective banksupervision depends in part upon the ability of theregulators and the institutions that they regulate toengage in a frank exchanges of information that are,by any reasonable commercial standard,confidential. Ill-considered disclosures orstatements by a regulator can shake the public’sconfidence in even a robustly healthy bank, or placethat institution at a competitive disadvantage vis-a-vis its peers, with unfortunate consequences.
This case is significant in that the decisionbelow challenges the long-standing presumptionthat the _Freedom of Information Act (FOIA) doesnot require banking regulators to discloseconfidential regulatory information about afinancial institution under its supervision. Asdiscussed herein, the Court should grant theClearing House Association’s petition for a writ ofcertiorari so it may reverse the Second Circuit’sdecision, which will undermine the clear andlongstanding policy exempting sensitive bankregulatory materials from disclosure under FOIA.
In submitting this amicus, the ABAacknowledges that Congress has not been idle withregard to setting the parameters for _futuredisclosures by the Federal Reserve (and the ReserveBanks) of Discount Window borrowing and other
5
similar transactions. Under the recent Dodd-FrankWail Street Reform and Consumer Protection Act5,the Federal Reserve will be required in the future todisclose the identities of banks that borrow from theDiscount Window, along with other transaction leveldetails of their borrowing. The ABA submits thatreview should nevertheless be granted because (1)the recent legislation does not moot the currentdispute, (2) the issue is still ripe as the SecondCircuit’s construction of FOIA may be used toundermine the long-standing presumption againstdisclosure of sensitive documents in futurelitigation, and (3) the Dodd-Frank amendments donot abate the potential harm to the industry thatcould result from the present disclosures.
STATEMENT OF INTEREST OFAMICUS CURIAE
The American Bankers Association ("ABA") isthe principal national trade association of thefinancial services industry. The ABA’sheadquarters are located in Washington, DC. Itsmembers, located in each of the fifty states, theDistrict of Columbia, and Puerto Rico, includefinancial institutions of all sizes. ABA membershold a majority of the domestic assets of thebanking industry in the United States.
The ABA and its members support theClearing House Association’s petition because they
have a direct interest in the outcome of this case.FOIA provides the framework within which thepublic may request the release of information fromthe various agencies of the federal government,including the agencies and departments that havebeen tasked with the oversight and regulation of thenation’s banking industry. The Second Circuit’sopinion interprets FOIA in a manner that, ifallowed to stand, could serve as precedent to compelthe public release of heretofore confidentialdocuments or information in the possession offederal bank regulators. This result is at odds withthe purpose of the exemptions to disclosure thatwere enacted as an integral part of FOIA and, ifallow to stand, the precedent could prove damagingto both the public interest and the interest of ABA’smembers.
ARGUMENT
The ABA strongly concurs with thearguments articulated by the Clearing HouseAssociation in support of its petition. The ABAagrees that the disclosure of documents that revealthe identity of institutions that borrowed from the"emergency" lending facilities offered by the FederalReserve and the Federal Reserve Banks during therecent financial crisis should be shielded fromdisclosure under FOIA.
In crafting FOIA, Congress made it very clearthat it did not intend for the statute to be used tocompel the release of documents or information inthe possession of a bank regulator that have the
7
potential to destabilize a financial institution or willfrustrate the implementation of federal programsthat are designed to promote and protect the safetyand soundness of the financial system.
A. FOIA Should Not Be Interpreted In AManner That Will Undermine TheAcknowledged Purpose Of Exemption 8.
At the time of the passage of the Freedom o£In£ormation Act in 1966, Congress was fullycognizant of what a loss of public confidence coulddo and do very quickly - to a depositoryinstitution. Mindful that opening up the process ofregulating financial institutions to the public wouldcreate unacceptable risks for banking industry andmake effective supervision of the banking systemmuch more difficult, Congress enacted exemptionsto FOIA that excuse the disclosure of information inthe government’s possession that has the potentialto destabilize a financial institution or chill thenecessary candor and cooperation that should existbetween a bank and its regulators.
Exemption 8 of FOIA protects from disclosureinformation that is "contained in or related toexamination, operating, or condition reportsprepared by, on behalf of, or for the use of an agencyresponsible for the regulation or supervision offinancial institutions.’’6 Courts construing thisprovision have identified two major reasons forexcluding this category of documents from routine
6 5 U.S.C. § 552(b)(8) (2006).
8
public disclosure: to preserve the public’s confidencein banking institutions that could be eroded by adisclosure of regulatory documents, and to ensurethe continued candor and cooperation of banks withtheir regulators. The United States Circuit Courtfor the District of Columbia Circuit concluded that
[T]he primary reason for adoption ofExemption 8 was to insure the securityof financial institutions. Specifically,there was concern that disclosure ofexamination, operation, and conditionreports containing frank evaluations ofthe investigated banks might underminepubfic confidence and causeunwarranted runs on banks ....Furthermore, a secondary purpose inenacting Exemption 8 appears to havebeen to safeguard the relationshipbetween the banks and their supervisingagencies. If details of the bankexaminations were made freely availableto the public and to banking competitors,there was concern that banks wouldcooperate less fully with federalauthorities.
Consumers Union of United States, Inc. v.Heimann, 589 F.2d 531, 534 (D. C. Cir.1978)(footnotes omitted),v The D.C. Circuit
7 Se~, H. Rep. No. 1497, 89th Congress, 2nd Session, House
Committee on Government Operations (May 9, 1966) (S. 1160)at 32 ("This exemption is designed to insure the security andintegrity of financial institutions, for the sensitive details
(continued...)
9
subsequently expanded upon its discussion inConsumers Union when it stated that "(i)t is clearfrom the legislative history that the exemption wasdrawn to protect not simply each individual bankbut the integrity of financial institutions as anindustry." Gregory v. Federal Deposit InsuranceCorporation, 631 F.2d 896, 898 (D.C.Cir.1980)(citations omitted).8
(...continued)collected by Government agencies which regulate theseinstitutions could, if indiscriminately disclosed, cause greatharm").
s See A~t’l Cmty. Reinvestment Coal. v. Nat’l Credit Union
Admin., 290 F. Supp. 2d 124, 135-36 (D.D.C. 2003) (affirmingthat two purposes of Exemption 8 are "to safeguard publicconfidence which could be undermined by candidevaluations of financial institutions" and "to ensure that[banks] continue to cooperate . . . without fear that theirconfidential information will be disclosed"); Feinberg v.Hibernia Corp., No. 90-4245, 1993 WL 8620, at *4 (E.D. La.Jan. 6, 1993) (noting Exemption 8’s dual purpose of protectingoperation and condition reports containing frank evaluationsof investigated banks, and protecting relationship betweenfinancial institutions and supervisory government agencies)(non-FOIA case); Atkinson v. FDIC, No. 79-1113, 1980 WL355660, at "1 (D.D.C. Feb. 13, 1980) (recognizing Exemption8’s purposes of protecting security of financial institutions and"promot[ing] cooperation and communication between bankemployees and examiners"), appeal dismissed No. 80-1409,1980 WL 355810, at "1 (D.C. Cir. June 12, 1980); Berliner,Zisser, Walter & Gallegos v. SEC, 962 F. Supp. 1348, 1353 (D.Colo. 1997) (delineating Exemption 8’s "dual purposes" as"protecting the integrity of financial institutions andfacilitating cooperation between [agencies] and the entitiesregulated by [them]"). See also Fagot v. FDIC, 584 F. Supp.
(continued...)
10
Courts construing Exemption 8 have treatedit as a broad and all-inclusive exclusion fromdisclosure. The D.C. Circuit has opined that "ifCongress has intentionally and unambiguouslycrafted a particularly broad, all-inclusive definition,it is not [the courts’] function, even in the FOIAcontext, to subvert that effort." Consumers Unionof United States, Inc., 589 F.2d at 533. As anothercourt has stated, "Exemption 8 was intended byCongress -- and has been interpreted by courts -- tobe very broadly construed," Pentagon _Fed CreditUnion v. Nat’l Credit Union Admin., No. 95-1475,1996 U.S. Dist. LEXIS 22841, at "11 (E.D. Va. June7, 1996).
Consistent with this broad construction,courts have extended the coverage of Exemption 8 toprotect a wide variety of agency materials that are"related to" but do not technically qualify as "reportsof examination.’’9 For example, the Fifth Circuithas held that Exemption 8 also protects agencymaterials that are only indirectly related to a bankexamination such as an "Order of Investigation"- astrictly internal agency document that formallycommences an administrative investigation by the
(...continued)1168, 1173 (D.P.R. 1984) (recognizing purposes of Exemption 8in protecting information containing frank evaluations whichmight undermine public confidence and relationship betweenfinancial institutions and supervisory agencies), a_ffd inpertinent part & rev’d in part, 760 F.2d 252 (lst Cir. 1985)(unpublished table decision).~ Atkinson, 1980 WL 355660, at "1-2.
11
agency into unsafe practices or violations of law orregulation at an institution. 10
Indeed, a number of decisions regarding thedisclosure of sensitive regulatory documents orinformation outside of a FOIA setting haveconsidered (and been guided by) the desire toprotect the stability of depository institutions andthe effectiveness of the regulatory processenunciated by Congress in its adoption ofExemption 8. For example, in In re: VerrazzanoTowers’, the court declined to enforce a third-partylitigation subpoena directed to the FDIC seeking tocompel the release of "all orders, directives,correspondence, memoranda" relating to theFlushing Savings Bank and its involvement withmortgages, joint ventures and other land dealings.Recognizing that while FOIA had "no directapplication" to the enforcement of a subpoena inlitigation, the court was nevertheless persuadedthat the disclosure of documents that reflect theregulation and operation of a financial institutionraised the same policy concerns addressed byCongress’s adoption of Exemption 8, and declined tocompel the production:
lo Abram.~ v. U.S. Dept. of Treasury, 243 Fed. Appx. 4, 6 (5th
Cir. 200’7) (rejecting plaintiffs argument that Order ofInvestigation must directly relate to content of bankexamination report, finding instead that "statute nevermentions contents, and only requires that a matter be relatedto the Report in order to be exempt from production").
12
[T]he rationale behind exemption 8 isclearly analogous to any policysupporting the official informationprivilege claimed by the FDIC. It ispresumed that revelation under FOIA ofinformation in the possession of federalbanking agencies such as the FDICmight produce harmful results for thebanking industry and the supervisingagencies. It then seems clear thatdisclosure of the same types of records toprivate parties in the course of litigationcould have similar undesired effects.
In re Verrazzano Towers, 7 B.R. 648, 652(Bankr.E.D.N.Y. 1980). See also, In re KnoxvilleNews-Sentinel Co., 723 F.2d 470, 476 (6th Cir. 1983)(citing Exemption 8 as support for conclusion thatagency’s questioning of bank employees is to beshielded from civil discovery).
While it is true that Exemption 8 was notraised administratively as a bar to disclosure in thiscase, the ABA respectfully submits that it makesvery little sense to compel the release agencydocuments under FOIA that would create the samepotential for the type of harm that Congressexpressly sought to avert when it adoptedExemption8.11 There is a sufficient similarity
~1 The ABA submits that the District Court in Fox NowBNetwork v. Board of Governors of the Federal Reserve System,correctly analyzed the situation when it concluded that thedisclosure of Federal Reserve materials could potentially cause
(continued...)
13
between the type of information that would beconveyed by the Federal Reserve’s Remaining TermReport and a Report of Examination prepared by achartering authority to support such a conclusion:both capture confidential aspects of bankoperations, and both are treated by analysts and theindustry as providing a measure of the financialhealth of an institution. It would be paradoxical tocompel the release of sensitive documents belongingto a federal banking regulator based on an analysisof FOIA Exemptions 4 or 5 when the disclosurecould clearly cause the very harm that Congressexpressly sought to prevent when it adoptedExemption 8.
B. The Transactions In Question WereUndertaken Based On The Well-Settled
(...continued)great harm and a loss of public confidence in the bankingindustry:
The Board’s concerns, that rumors are likely tobegin and runs on banks are likely to develop,cannot be dismissed. Similarly, the Board’sconcern is real that disclosure would revealproprietary trading information of borrowers,their trading strategies and the size and natureof their portfolios of assets. The nationaleconomy is not so out of danger, and the frailtyof banks so different now than when theirDiscount Window borrowing began, as to makethe Board’s concern academic.
The ABA also concurs with the ClearingHouse Association’s argument (at 6) that the Courtshould grant review because the Second Circuit’sdecision will disrupt the Federal Reserve’s "long-established procedures" which establish thatDiscount Window borrowing will remainconfidential. Cf. Renegotiation t?d. v. t?annereraftClothing Co., 415 U.S. 1, 11 (1974) (grant ofcertiorari to analyze "the impact of the FOIA uponlong-established procedures of the RenegotiationBoard"). Indeed, the institutions that availedthemselves of the Federal Reserve lending facilitiesdid so in reliance upon the government’s long-standing assurance that the transaction wouldremain confidential. 12 For these institutions, thereis an element of surprise and unfairness in theSecond Circuit’s decision.
The reason for this policy of treating DiscountWindow transactions as confidential is easilyexplained: while healthy financial institutionsfrequently borrow from Federal Reserve Banks forordinary operational reasons, there is nevertheless astigma attached to borrowing from the DiscountWindow or other similar facility. The stigma arises
lz See Brian F. Madigan & William R. Nelson, ProposedRevision to the Federal Reserve’s Discount Window LendingProgram, 88 Fed. Res. Bull. 313, 315 (2002)(The FederalReserve has long held "information about borrowing byindividual banks in the strictest confidence.").
15
from the fact that Federal Reserve Banks act as"lenders of last resort" to depository institutions andprimary dealers that are unable to secure fundingfrom market sources on a short term basis. Becauseof the stigma associated with accessing the DiscountWindow, banks have been reluctant to access thislending facility. 13
The equitable necessity for honoring theFederal Reserve’s assurances of confidentiality iseasy to understand; many institutions that enteredinto Discount Window transactions during therelevant period covered by this case would not havedone so absent the Federal Reserve’s longstandingassurance of confidentiality.
1~ Federal Reserve Chairman Ben Bernanke has stated that
the reluctance of banks to seek necessary funding from theDiscount Window has hampered the effectiveness of theprogram, and that reluctance stems from the "stigma"associated with having to borrow from the Federal Reserve:
[T]he efficacy of the discount window has beenlimited by the reluctance of depositoryinstitutions to use the window as a source offunding. The "stigma" associated with thediscount window, which if anything intensifiesduring periods of crisis, arises primarily frombanks’ concerns that market participants willdraw adverse inferences about their financialcondition if their borrowing from the FederalReserve were to become known.
Bernanke, Ben, Remarks Via Satellite at the Federal ReserveBank of Atlanta Financial Markets Con£erence: LiquidityProvision by the Federal Reserve (May 13, 2008) available athttp:l/www.federalreserve.govlnewseventslspeeeh/bernanke20080513.htm.
16
Finally, the ABA acknowledges that Congresshas not been idle with regard to setting theparameters for future disclosures by the FederalReserve (and the Reserve Banks) of DiscountWindow borrowing and other similar transactions.Under the recent Dodd-Fr~nk W~ll Street Reformand Consumer Protection Act14, the Federal Reservewill be required in the future to disclose theidentities of banks that borrow from the DiscountWindow, along with other transaction level detailsof their borrowing. The disclosure is subject to atwo-year waiting period after the borrowing occurs.
The ABA submits that review shouldnevertheless be granted. First, the 1Pedal-Frankamendments to the Federal Reserve’s disclosureprocedures do not moot this appeal as theyexpressly carve out litigation initiated prior to theenactment of the statute. Second, the issue is stillripe as the Second Circuit’s construction of FOIAmay be used to undermine the long-standingpresumption against disclosure with respect to othertypes of documents or information in the possessionof the regulators, not just information pertaining tothe details of Discount Window transactions. Third,the 1)odd-Frank amendments do not abate thepotential harm to the industry that could resultfrom the present disclosures. As noted by theClearing House Association in its brief (at 4, 11-12),disclosure of the borrowing patterns of individual
banking institutions during the recent financialcrisis may cause depositors and the investing publicto draw inferences--whether justified or not--thatcould affect their confidence in the current financialcondition of the affected institutions.
CONCLUSION
For the foregoing reasons, the ABA urges theCourt to grant the Clearing House Association’spetition for a writ of certiorari.
Respectfully submitted,
C. DAWN CAUSEYGREGORY TAYLORCounsel o£RecordAMERICAN BANKERSASSOCIATION1120 Connecticut Ave., N.W.Washington, D.C. [email protected]
