Bloomberg v. Board of Governors of Federal Reserve, 08 Civ. 9595 (LAP).
| Decision Date | 24 August 2009 |
| Docket Number | No. 08 Civ. 9595 (LAP).,08 Civ. 9595 (LAP). |
| Citation | 649 F.Supp.2d 262 |
| Parties | BLOOMBERG L.P., Plaintiff, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Scott Sanford Rose, Thomas H. Golden, Jared Errol Cohen, Willkie Farr & Gallagher LLP, New York, NY, for Plaintiff.
Yvonne Facchina Mizusawa, Board of Governors of the Federal Reserve System, Washington, DC, for Defendant.
This action concerns whether the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552, compels the Board of Governors of the Federal Reserve System (the "Board"), when responding to FOIA requests, to search for records held at the Federal Reserve Bank of New York ("FRBNY") and the applicability of FOIA Exemptions 4 and 5 to certain records currently in the Board's possession. This dispute first arose when Bloomberg L.P. ("Bloomberg") reporters Mark Pittman and Craig Torres each submitted FOIA requests (the "FOIA Requests") to the Board requesting information about the Federal Reserve System's extraordinary actions taken in early 2008, during one of the worst financial crises in the history of this nation. In response to the FOIA Requests, the Board conducted an internal search for records held by the Board only, identified certain documents as responsive to the FOIA Requests, but withheld those documents pursuant to FOIA Exemptions 4 and 5. Bloomberg sued to compel the disclosure of the documents and to require the Board also to search records held at the FRBNY.
Both Bloomberg and the Board now move for summary judgment on those issues [see dkt. nos. 10 and 18]. For the reasons set forth herein and as detailed below, Bloomberg's motion is GRANTED, and the Board's motion is DENIED.
A brief overview of the Federal Reserve System structure is helpful for understanding the circumstances of this action. The Federal Reserve System is the Central Bank of the United States. It is composed of the Board, located in Washington, D.C., and twelve regional Federal Reserve Banks (the "FRBs"). The Federal Reserve System: Purposes and Functions 3 (9th ed., June 2005) [hereinafter P & F]. Collectively, the Board and the FRBs fulfill the four overriding purposes of the Federal Reserve System: conducting the nation's monetary policy, supervising and regulating banking institutions, maintaining the stability of financial systems and markets, and providing financial services to major financial actors. See id. at 1-2. The Federal Reserve System considers itself to be an independent central bank because its decisions do not require ratification by the President or executive branch officials. Id. at 3. The System is, however, subject to oversight by Congress. Id.
While together the Board and the FRBs comprise the Federal Reserve System, they have independent mandates and responsibilities. The Board is a federal agency tasked with, inter alia, supervising or regulating the operations of the FRBs, reviewing and approving changes to interest rates charged by the FRBs and overseeing loans among and by the FRBs. Id. at 4; see also 12 U.S.C. § 248. An additional component of the Federal Reserve System is the Federal Open Market Committee ("FOMC"), a separate governmental agency that shares offices with the Board. See 12 U.S.C. § 263. The FOMC is made up of the members of the Board, the president of the FRBNY, and presidents of four other FRBs, who serve on a rotating basis. P & F at 3. "The FOMC oversees open market operations, which is the main tool used by the Federal Reserve to influence overall monetary and credit conditions." Id.
The FRBs, on the other hand, are semiautonomous institutions with private funding and independent corporate structures.1 Congress chartered the FRBs and granted them distinct powers, apart from the powers granted to the Board, such as the power to sue and be sued in their own names, to make contracts, to appoint officers, hire and fire employees and prescribe bylaws through their boards of directors. See 12 U.S.C. §§ 341-361. FRBs do not receive appropriated funds from Congress but rather generate funds from stock issuances to depository institutions in their districts. See 12 U.S.C. §§ 222, 282, 321, 341. Each FRB has a nine member board of directors, six of whom are elected by shareholder banks within the FRB's district and three appointed by the Board. See 12 U.S.C. §§ 301-302. The FRBs' role within the Federal Reserve System is generally supportive of the Board, "carrying out a variety of System functions, including operating a nationwide payments system, distributing the nation's currency and coin, supervising and regulating member banks and bank holding companies, and serving as banker for the U.S. Treasury." P & F at 4. The FRBs give all revenue in excess of expenses to the U.S. Treasury. 12 U.S.C. § 289.
A central feature of the FRBs is their administration of the discount window lending program ("DW"), meant to relieve pressures on the interbank funds market and a means for providing emergency liquidity to qualifying depository institutions during times of systemic stress. (See Decl. of Susan E. McLaughlin ¶ 5.) P & F at 31. While the Board regulates DW lending, see 12 U.S.C. § 347b, the Board has no input or involvement in the administration of specific DW loan requests. (Decl. of Susan E. McLaughlin ¶ 8.) FRBs publish DW interest rates, but information on the names of depository institution borrowers, collateral pledged by the borrowers, individual loan amounts, or the specific type of DW program borrowed from is not publicly disclosed. (Id. ¶ 9.) At least with respect to the FRBNY, loan and collateral documentation relating to each DW loan is maintained at the bank, and that information is maintained on a need-to-know basis. (Id.)
In 2007, the U.S. economy encountered a serious financial crisis. In late 2007, responding to deteriorating market conditions, the Board authorized the FRBs to establish a new lending facility for depository institutions called the Term Auction Facility ("TAF"). (Decl. of Brian F. Madigan ¶ 7.) In March 2008, the Board also authorized only the FRBNY to create additional lending programs to give primary dealers access to liquidity: the Primary Dealer Credit Facility ("PDCF") and the Term Securities Lending Facility ("TSLF"). (Id.; Decl. of Susan E. McLaughlin ¶ 10.) The FRBNY does not publish any information on PDCF loans, other than aggregate information on PDCF borrowing. (Decl. of Susan E. McLaughlin 16.) Information about the other lending programs is maintained internally at the FRBNY or, in the case of TAF loans, internally at each FRB. (Decl. of Brian F. Madigan ¶ 12.)
In March 2008, Bear Stearns, one of the largest securities firms in the United States, notified members of the Federal Reserve that due to deteriorating market conditions it would be unable to repay a large portion of its obligations and thus faced the prospect of filing for bankruptcy protection. On Friday, March 14, 2008, in order to avoid serious harm to the financial markets if Bear Stearns collapsed, the Board authorized the FRBNY to extend credit to Bear Stearns through JPMorgan Chase Bank, N.A. ("JPMC"). That day, the FRBNY made an overnight DW loan of $12.9 billion to JPMC and took as collateral Bear Stearns assets with a value of $13.8 billion. On Monday, March 17, 2009, JPMC and Bear Stearns repaid the FRBNY the $12.9 billion loan in full with interest of nearly $4 million.2
The Board is subject to the Freedom of Information Act, promulgates regulations regarding FOIA compliance, and maintains designated personnel to respond to FOIA requests. See 12 C.F.R. §§ 261.12-.17. The FOMC also considers itself a separate governmental agency for FOIA purposes and publishes FOIA regulations. See 12 U.S.C. § 263; 12 C.F.R. §§ 271.1-271.9. The FRBs, however, consider themselves private corporations and issue no published FOIA regulations.
On May 21, 2008, Bloomberg reporter Mark Pittman submitted to the Board a FOIA request (the "Loan Request") seeking:
For all securities posted between April 4, 2008 and May 20, 2008 as collateral to the Primary Dealer Credit Facility, the discount window, the Term Securities Lending Facility, and the Term Auction Facility (the "Relevant Securities"), we request copies of:
1. all forms and other documents submitted by the party posting the Relevant Securities as part of the application for the loan;
2. all receipts and other documents given to the party posting the Relevant Securities as part of the application for the loan;
3. records sufficient to show the names of the Relevant Securities;
4. records sufficient to show the dates that the Relevant Securities were accepted and the dates that the Relevant Securities were redeemed;
5. records sufficient to show the amount of borrowing permitted as compared to the face value, also known as the "haircut";
6. records sufficient to describe whether valuations or "haircuts" for the Relevant Securities changed over time 7. records sufficient to show the terms of the loans and the rates that the borrowers must pay;
8. records sufficient to show the amount that the Federal Reserve has accepted of each of the Relevant Securities;
9. records sufficient to show which, if any, Relevant Securities have been rejected as collateral and the reasons for the rejections;
10. all databases and spreadsheets that list or summarize the Relevant Securities; and
11. records, including contracts with outside entities, that show the employees or entities being used to...
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