Around noon today, Wednesday, the Fed will begrudgingly release documents that may reveal which banks would have failed without a bailout.
Ever since the Fed bailout in 2008, the public has only known that nearly every major US bank was bailed out. But of course that's because the Fed shielded us from the knowledge of which banks actually needed a bailout.
A little background: In 2008, the Fed is said to have loaned to banks that didn't need bailouts in order to remove the stigma of being insolvent from the banks that needed one, which could have rendered the bailouts worthless.
The Feds didn't want it to be one group of "insolvent, very risky" banks versus one group of "solvent, solid" banks.
The documents released today may distinguish one group from the other.
So it's no surprise that after Bloomberg's Mark Pittman requested the forms back in 2008 (before he died in 2009) as part of the freedom of Information Act, the Federal Reserve Board appealed to the court to avoid releasing the requested information.
Here's what we'll find out:
- The amount of assistance each entity received
- The terms under which funds were disbursed
But that's not what we're most excited for.
These are the "hot" items Bloomberg requested, the info the Fed really doesn't want to release:
- 231 “term sheets” documenting Fed loans to financial firms during 2008. The records, which include the banks’ names, the amounts borrowed and the collateral posted in return.
Of course the banks don't want these details revealed. The info could seriously damage the banks that would have failed without a bailout.
The Fed tried to use the potential havoc the data could wreak in a bid to keep the data under wraps six months ago:
"[In their appeal, the Fed said that] disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury."
But their appeal was denied.
A consortium of banks (including JP Morgan, BofA and Citi) called the Clearing House Association then filed another appeal, however, which the Fed did not join. But because the decision was appealed, the lower court's ruling was put "on hold" until the high court returns a verdict - hence the Fed did not have to release the documents right away.
So does that mean we will definitely find out which banks needed bailing out and which didn't? No. There's no way of knowing.
Plus, while Dodd-Frank financial reform law mandates the Fed release details on emergency programs during the crisis, it apparently it not required to release information on discount window, which is the window that Bloomberg is sued over.
So soon, we could still be as clueless as we are now.
OR, as an Oppenheimer bank analyst put it in March:
[The release could have] “catastrophic” results, including demands for the instant disclosure of banks seeking help from the Fed, resulting in a “death sentence” for such financial institutions.
The release is set for 12 pm, and Senator Bernie Sanders is holding a conference call at 4 pm to discuss the findings with the media.
We'll be all over the documents starting at noon, so stay posted.
