Wednesday, November 19, 2008

Bernanke Says Federal Reserve Won't Reveal Details on Loans

By Steve Matthews and Craig Torres

Nov. 18 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the central bank won't disclose details of the $2 trillion in emergency loans of taxpayer funds because doing so would stigmatize banks needing the money.

``Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting,'' Bernanke said today to the House Financial Services Committee. ``We think that's counterproductive.''

Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bank rescue plan. Two months later, as the Fed lends far more than that in separate lending programs that don't require lawmakers' approval, Bernanke said too much disclosure would harm the borrowers.

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression.

``First, the success of this depends on banks being willing to come and borrow when they need short-term cash,'' Bernanke said in response to questioning from Representative Spencer Bachus of Alabama, the committee's senior Republican.

``There is a concern that if the name is put in the newspaper that such-and-such bank came to the Fed to borrow overnight for a perfectly good reason, that others might begin to worry is this bank creditworthy and that might create a stigma, a problem, and might cause banks to be unwilling to borrow, and that would be counterproductive.''

`Very Safe' Loans

Bernanke said the central bank would not lose money on its lending, which is backed by assets.

``We take collateral, we haircut it, it is a short-term loan, it is very safe, we have never lost a penny in these various lending programs,'' he said.

Before Sept. 14, the Fed accepted mostly top-rated government and asset-backed securities as collateral. After that date, the central bank widened standards to accept other kinds of securities, some with lower ratings. The Fed collects interest on all its loans.

At a Sept. 23 Senate Banking Committee hearing in Washington, Paulson called for transparency in the purchase of distressed assets.

``We need oversight,'' Paulson told lawmakers. ``We need protection. We need transparency. I want it. We all want it.''

At a joint House-Senate hearing the next day, Bernanke also stressed the importance of openness in the program. ``Transparency is a big issue,'' he said.

The Bloomberg lawsuit argues that the collateral lists ``are central to understanding and assessing the government's response to the most cataclysmic financial crisis in America since the Great Depression.''

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