Federal Reserve forced to name bailed-out companies

The Federal Reserve must for the first time identify the companies in its emergency lending programmes after losing a Freedom of Information Act lawsuit.

Manhattan Chief US District Judge Loretta Preska ruled against the central bank on Monday, rejecting the argument that loan records aren't covered by the law because their disclosure would harm borrowers' competitive positions.

The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programmes, saying that doing so might set off a run by depositors and unsettle shareholders.

Bloomberg, the New York-based company majority-owned by Mayor Michael Bloomberg, sued on November 7 on behalf of its news unit.

"The Federal Reserve has to be accountable for the decisions that it makes," said Representative Alan Grayson, a Florida Democrat on the House Financial Services Committee, after Preska's ruling.

The judge said the central bank "improperly withheld agency records" by "conducting an inadequate search" after Bloomberg News reporters filed a request under the information act. She gave the Fed five days to turn over documents.

The central bank "essentially speculates on how a borrower might enter a downward spiral of financial instability if its participation in the Federal Reserve lending programmes were to be disclosed," Preska wrote. "Conjecture, without evidence of imminent harm, simply fails to meet the board's burden" of proof.

David Skidmore, a Fed spokesman who said the board's staff was reviewing the 47-page ruling, declined to comment on whether the central bank would appeal.

Bloomberg said US taxpayers needed to know the terms of Fed lending because the public became an "involuntary investor" in the nation's banks as the financial crisis deepened and the Government shored up companies with capital and loans.

"When an unprecedented amount of taxpayer dollars were lent to financial institutions in unprecedented ways and the Federal Reserve refused to make public any of the details of its extraordinary lending, Bloomberg News asked the court why US citizens don't have the right to know," said Matthew Winkler, the editor-in-chief of Bloomberg News.

"We're gratified the court is defending the public's right to know what is being done in its interest."

The Fed's balance sheet about doubled after lending standards were relaxed in the wake of the collapse of Lehman Brothers Holdings on September 15, 2008.

For the week ended August 19, Fed assets rose 2.3 per cent to US$2.06 trillion ($3 trillion) as it continued to buy mortgage-backed securities under a programme allowing the central bank to purchase non-government securities.

The US House may vote as soon as next month on a bill to require the Fed to submit to audits by the Government Accountability Office, said Representative Scott Garrett, a New Jersey Republican on the Financial Services Committee.

- BLOOMBERG