The banks that received emergency cash from the Federal Reserve during the financial are beginning to chafe under demands to reveal their identities to the public. Efforts by Bloomberg to obtain these names through a Freedom of Information Act request have been vigorously opposed by the Clearing House Association, a group which represents 20 of the country’s biggest commercial banks. This dispute has moved to the highest court, with the Clearing House Association asking the Supreme Court to keep the use of bailout funds secret.
A recent article by Matthew Winkler in the Wall Street Journal criticizes the large banks for refusing to reveal their use of Fed bailout funds during the mortgage crash reveals one of the biggest flaws of the government’s approach to managing the economy, a near complete lack of transparency.
“Now the Clearing House Association, which represents 20 of the country’s biggest commercial banks, is asking the Supreme Court to keep the bailout secret. The issue is the identities of financial firms that borrowed from Federal Reserve programs including the discount window, which had loans outstanding for as much as $111 billion in 2008.
Bloomberg LP, the parent of Bloomberg News, is suing under the Freedom of Information Act to force the Fed to name names. Bloomberg’s case prevailed in federal court and on appeal (at which point the Fed, though not the Clearing House Association, decided against further appeal).”
The complaint by large banks that the admitting the use of bailout funds could harm their business does have merit; revealing to consumers that a bank’s financial state was so dire to require a bailout could drive customers away. However, this is far outbalanced by the need of taxpayers to know how these dollars were spent.
“Attorneys for the banks—Bank of America, J.P. Morgan Chase, Citigroup and Wells Fargo among them—are asking the high court to reverse those rulings. They argue that divulging details about borrowers will stigmatize the institutions, put them at a competitive disadvantage and make them less likely to seek emergency loans in the future.”
While these funds were all paid back, often with interest, this doesn’t mean they should be considered a success, Bailouts and increasingly onerous regulations are woefully ineffective at solving the root causes of the current crisis. They succeed only in propping up failing companies. In some instances, bailout funds were even used to facilitate mergers, with larger banks like PNC gobbling up smaller banks like National City.
