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tv   America the Courts  CSPAN  January 30, 2010 7:00pm-8:00pm EST

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>> i am having fun. it is really easy to take pot shots from the outside. i will admit, i did that as much as others. when you get on the inside, there are a number of dedicated people who are trying hard. it is quite inspiring. i have never heard anybody say let's do this because it is the politically expedient thing to do. this is what some powerful interest group wants. . .
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>> c-span radio, covering washington like no other. ♪ >> this is c-span's "america and the court's." next, oral arguments from fox news vs. the board of governors and bloomberg vs. the board of
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governors from the second circuit court of appeals in new york city. the court will decide whether or not to block a lower-court ruling that will force the federal reserve to reveal the identities of financial restitution is that may have collapsed without assistance from the government's to our program. -- tarp program. [inaudible] >> i will call the day calendar and asking everybody is here. in the two cases to be heard in tandem, good afternoon.
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the board of governors will split the argument between two lawyers. what will be the principle of division? >> [inaudible] >> you ought to make that clear, because it does not lend itself to any division. i see everyone else is here. ok. united states vs. rojas, counsel present? good afternoon. united states vs. acosta andmillow? everybody is here. chobaz vs. holder. singleton vs. holder?
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last cas is melience vs. immigration court of appeals. at this time, we will hear bloomberg vs. board of governors and fox news vs. board of governors. we will hear those cases in tandem. >> thank you, your honor. may it please the court, i am from the department of justice on behalf of the board of governors. there with me with the board of governors, and they mentioned that she will be focusing primarily on the arm to the board, and issues that are specific to the fox litigation. the board releases a substantial amount of information about the discount window and the other emergency credit facilities at issue here, including aggregate
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lending data, eligibility requirements, and collateral requirements. what it has not released under explicit promises of confidentiality since the beginning of the discount window program many years ago are specific loan information regarding short-term liquidity loans and the identity of the institutions who received those loans. >> a question preliminarily. mr. collette? mr. collette, it is the board's position that what fox and bloomberg are looking for are the same data. >> yes, it is essentially the same data. >> is not drawing a distinction
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between the fox looking for too much specific information? >> there are additional facilities available in the fox case, the mails concerning the information. by and large, this is about the identity and the loan amount and maturity dates of these specific loans. >> i would like to address the standard of review. >> you're saying that the identity of the fall or, the loan amount -- follower, the loan amount, the terms and maturity date are information that you obtained? and the person is borrowing back? >> yes, through the reserve. >> if i borrow $10 from you and i give you an idea that says who i am and what i am going to give it back deal -- and when i am
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going to give it back to you, what is there they don't already know? >> i do already know. if somebody asks me for that information, i know it, but i have also obtained it from you. >> when i give you my i know you, what is it that you don't know before you get it from me. you already know you have given $10. you know you have given $10 in may. presumably we made a deal as to when you get it back. >> is a little different here, your honor. here we have a situation where the terms are set in advance. it is more like a line of credit. the collateral has already been pledged. it is already there. here is how much i want.
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the terms are already said. the fed already has that information. >> by whom are the terms set? >> the terms are set by the fed. >> is not something they you learn from a person? >> the rate and eligibility requirements are set by the fed. that is not what this case is about. i want to the identity of the bar or, how much they said -- >> let me just -- you're saying that the media wants to know how much they asked for? my understanding is that the media wants to know how much you gave them? >> is exactly the same thing. >> in any circumstance, and any government agency, if the government agency grants some
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permission, some exemption, a loan, whatever it may be that is the action of the government agency when it grants something to a corporation or whatever it may be, that is shielded from disclosure because by revealing that the government agency granted something, there would be a revelation that the person who received the grant had asked for it? >> it does not apply to the situation. >> what is the difference? correct me if i am wrong. you are saying that here is the broadcasters -- they are asking -- tell us how much you loaned to these banks. what were the loans and the terms? you are saying, if we told you how much we loaned them, you would be able to discern from that that they asked for a loan
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in that amount. therefore, this is confidential information acquired from a bar or. isn't that what you're saying? -- from a borrower. isn't that what you're saying? am i correct that that is your argument? >> is a little bit different. the way that these programs -- it is a little bit different. the way that these programs work, it does not say let's tweak the terms, lets up the rate. let's of the corral -- and left up to the collateral. -- let's up the collateral. >> is there a gross amount that cap to that? judging to -- you said it is similar to a line of credit. is there a line of credit? >> there would be a gross amount
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of eligibility, but that information is not what is in the documents here. >> why should you not disclose the amount that you on? the fed is being asked, tell us how much you loaned from the bar work, read it from the bar were -- from the bar were -- borrower. how do you come with an exemption when somebody asks, show us what you, the fed, loaned to these borrowing banks. where is the exemption? explain it to me. >> there are two set brett prongs. >> exploit about information obtained from the borrower.
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>> we believe the information that comes from the identity of the bar or -- of the borrower, and the amount that the borrower requested, the task to get that money. the rate that is release, the terms of the alone in general terms -- how much should the borrower ask for? who is the borrower? how much did you loan might be something different. this is the equivalent of saying that i want all of the loan applications that were submitted. >> that is not what they asked for. they ask how much loans did you make?
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>> this would reveal the exact information. >> revealing the collateral which is one thing they ask for is not revealing that exact information as you have described it here. -- a precise collateral that is pledged to go explain to me -- >> explain to me how we are to ruin your favor on this, and we have a case in which someone comes and says to the federal
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energy commission or something like that, d.c. the and drilling regulations. the answer is, no, no, we can't give you that. if we showed what exemptions we gave, we would be showing who it was that asked for exceptions and what exemptions were asked for. that is information obtained from a borrower. how would i abstain from your position in this case? >> you would say -- >> that is not what they ask for in this case, and that is now they're asking for in that case. they're asking for what as the
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federal agency granted to applicants? >> we believe the federal reserve board -- in this case, it is a ministerial act in the department of energy scenario. surely grand this license? should we loan this money? this is a compilation of the material of mid -- of the information submitted. it is much like the case that we cited. >> the board -- is not possible to deny the application? >> it would be limited to
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overnight loans from an institution that essentially has already been deemed not quite ready. essentially, is a line of credit. yes, this bank is eligible, and the transaction occurs. the case like the buffalo evening news that involved -- they are making a specific determination, the equivalent of a loan application. they are saying that i would like all the credit card transactions of a particular individual. >> and the amount that was given
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in losses to deal the amount that was passed. it is some statement of collateral? >> yes. it is essentially saying that i want a loan application, information that reveals the identity of the borrower. and its relief as we discuss it -- >> your brief also says that healthy financial institutions also borrow from the federal reserve banks, and they do it for ordinary operational reasons. while everyone of these loans have a stigma attached? -- why would every one of these loans have a stigma attached? >> it is used by healthy banks
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and banks that are sick. why, therefore would disclosure that alone took place signify to the public at large that the bank is sick as opposed to a healthy? >> is not used unless there is liquidity problems. -- it is not used unless there are liquidity problems. you can get on the funds market at a lesser rate. these loans are over collateralized. there are hair cut attached, it far exceeds the loan, so you don't go here unless you have a liquidity problem. it can be a temporary problem. it is not something that you want to happen every day. to be a healthy, fully capitalized institution, you have a few outstanding accounts -- >> would you concede that under the securities laws, each bank
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could, if it shows to reveal its investors in a filing with the sec, all the information that you claim would be disastrous to be released. >> a bank could do that. the sec does not require it. it requires relevant information, but a voluntary disclosure -- >we do not have any instances of a loan by mount disclosure. they have made the decision that they can disclose -- >> they could disclose that if they thought it was material information for the public. >> they could disclose that. that could be a calculation that they make. it does not mean that there is no stigma. the stigma is very real.
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>> to do you draw any distinction with the generalized impairment of reputation? >> i don't think his reputation all harm. it is a problem in which there will be an assumption potentially that this bank is in trouble. it is an industry in which confidence is key. it is an unwarranted inference? it could be. it can be. if i understand your argument, your saying that the harm is that people that do business with the bank will find out the true fact that the bank is having a liquidity problem. and we don't want people to find out that a bank is having a liquidity problem. is that what you're saying? >> yes, but we're not talking about banks on the brink of
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failure. >> is a 90-day term, right? from one day to 90 days? >> it is very short. >> how long does it take to process a request? >> it requires 20 days + -- to pull this together and go through at -- to go through it, we are up to 30 days. it is well over a year old. >> should we take into account the length of time -- >> is not a situation where a party comes and and says, here is my request for information,
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historical information from five years ago. i want information up to yesterday. now we have had litigation going on for a year or two, we need to reevaluate. >> is there a stigma that would have any effect whatsoever by the time -- [unintelligible] >> they pride themselves on being up-to-date. that essentially whether a bank is in trouble if that is a sign your about. >> after they discuss that, the information is still fresh. >> it only matters if it is really a stigma. i am having trouble with it being a stigma outside of the
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day that is going the have some effect on wall street. >> it is easy to discern patterns. the expert affidavit that we submitted from years of experience in trying to overcome this stigma has made it very clear that there is, in these, -- there is, indeed, a stigma. not even a confirmed run in the 90's -- >> is there -- banks frequently make these borrowings because they have an overnight problem
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the beef up the problem -- the resources. if none of that has ever known because of the restraints placed on disclosure, i have blown it out of proportion. >> in the judgment of the expert witnesses are in fact that if this were information disclosed, we are talking about a little bit of information here. the expert judgment is that people would stop using these facilities and the declaration talks about that.
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>> in the discount window is a resource of last resort, that people would let their banks go under rather than suffer the stigma of asking for money? suffer the stigma of walking up to a window and say i would like to $0.50 billion please? >> it is not simply a question of going under or not going under. >> that is a choice that is made by management of a bank whether to seek or not >> rather than use these a very important facilities that are designed to keep liquidity going to avoid the credit problems we have had very recently to allow these lenders to continue to make long-term commitments. if you won't go to this window,
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those are not necessarily failures, but you are facing -- not maintaining assets that can't be turned into liquid assets very quickly. this is what is addressed. >> you are talking about a crisis essentially of a moment. it is essentially a day or week. 20 days to answer a request to go you are not saying that 19 days has gone by to go most agencies have two-year back the loans.
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the defense department -- and the board of governors does not have a very large backlog. there is a case called tax analysts, and we have the notion that we wouldn't have to release them very quickly. the stigma would disappear after -- as soon as the loan is paid back, for instance. there are issues of risk- management if you look back and say that the bank borrowed from the discount window twice in the last six months and just did it again. you use this information potentially, and it could be that a large institutional borrower did not pay them back each time. one could draw the inference, rational or not, that they are in trouble. i am now going to take my money
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out of there. i am going to make y instead of x -- bank y instead of bank x. >> the action of making a loan contributes no new information about what comes from the fed. all it is the drawing down of previously arranged terms, is that correct? >> it does not necessarily apply to other forms of lending or licenses. >> explain to me what goes into the making of the initial decision, the decision under which the terms are set under which a bank will be able to walk under a window and sap its vendors and say that i am here by drawing down under a
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previously arranged terms, x amount of money. >> the requirements for that are all on the web site of the board and the banks. they say, here are the collateral requirements. here are the securities they you need a pledge. here the rates in the duration of the loans, the maximum duration of the loans you can get. all of that information is revealed. so is the aggregate information broken down by district. they say how much money each district loan for in -- any period of time -- >> you're saying that anybody that cares to look at publicly available information will allow, is entitled to take down under any of these programs and what -- all they would know is
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what date they decide to do it and how much they take? >> the specific banks and eligibility requirement is not revealed. at what is revealed is the requirements for the collateral and the eligibility requirements. >> one doesn't know the eligibility of what banks have what eligibility of drawdown? >> right. >> that is not information that comes from the banks. that is information that comes from the fed. >> that is not -- >> i thought you were saying to us that a person that requires the information about what a bank drew down on a particular day was learning nothing that came from the fed. was learning only about when the
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bank decided to draw down -- it was entitled to drawdown under the credit agreement. >> i am saying that the specific information is more akin to a lot application or credit card transaction. it does come from the board. i am far exceeding my time, i hope that i can correct any misstatements i have made and continue on with the discussion. i am willing to answer any more questions. >> we are going to play that by year, your honor. just one of us will argue. >> your honor, may it please the court, i am representing the federal reserve board.
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the issues -- there is a second alternative reason for this court to affirm the district was ruling in fox and blumberg. it granted summary judgment for the board on the alternative exemption. information is exempt, the disclosure of financial information would impair the ability to perform important statutory functions. i have evidence provided by the board at that the very same evidence we submitted to the bloomberg court, that the public disclosure and emergency landing in formation would impair the statutory monetary policy functions under section -- >> other than what we export
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moments ago, which is that banks would be hesitant to go to the discount window? >> this is exactly the reason. we show and our declarations that the discount window is also used by the federal reserve board to exert downward pressure on interest rates. the banking community lands and the interest rates go down. this is a critical source by which the board conducts monetary policy. the institution's access -- and by jerry policy function -- the monetary policy function -- >> how does that happen? >> the interest rates are going up and up as banks are less willing to lend. then they have less liquidity when they go to the discount window. it exerts downward pressure, and
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is direct for the board of monetary affairs. he is responsible for the board on matters of interest rates and the controlling that. it is considered judgment that this would make it much more difficult to control the short- term interest rate. >> you are saying that the reason that there would be -- that banks would be hesitant to come to the window is that they would acquire a bad image, that the world what question their solvency if they came to the window. you're telling us that banks don't come to the window except when they need to. their terms are disadvantages. where banks need to come to the window in order to get over the liquidity problem, they just wouldn't do a whether it be
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samurai style or fall on their swords rather than come to the window? >> it comes from the fact that the federal reserve is a backup. it is not the ordinary source of liquidity. >> if the collapse are start laying off people -- what is the government arguing? >> is a much higher interest rate in this declaration that during times of economic stress such as with the evolution of the russian deccan the '90s, the credit markets started to become jittery and it will behave as much as 10 are 15 percentage points more on the outside market rather than coming to the federal reserve because it is
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uniformly discerned in the banking market that it shows you're in trouble. a lender of last resort will be put in place with the federal reserve to provide liquidity backstop. >> they are not a last resort if they're going to the private market and paying more for the money. >> they are definitely paying more for the money in the private market. there were no other sources of liquidity. the federal reserve was the only source to go what would be -- >> why would people go to the discount window if they have no choice? >> these are extraordinary economic times. >> they're going to go to the discount window. they have the stigma of going to
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the discount window or going to other sources of borrowing. people, banks, everybody does it all the time. >> we don't want to banks to be paying more than they have to in the outside markets selling assets and laying off work. they specifically put in place in 1930. it is in the national interest for banks always to be lending, the advantageous effect on the economy -- we don't want to discourage them. >> the point you're making now is not one that is covered by the exemption specified by congress. >> congress did not do that.
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exemption no. 4 speaks of confidential information obtained from our worst. >> under the program effectiveness, it is adopted -- in a 9-5 revelation of continental commercial and financial information from a person with in paris -- are >> why haven't you got a congress and asked congress to modify statue to provide an exemption that you say is so important? is even vaguely suggested by the terms -- >> is comfortably within the exemption. we did show substantial injury to the borrower should be revealed. >> i would like to ask you to
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continue with the question i was asking your colleague before, it focuses more directly on this issue of confidential information received from the client. i had apparently misunderstood your colleague to be saying that when a borrowing is made, when a bank says it wants to take down some much money overnight or in 10 days, there is no information revealed by that, no information that is not already in public hands because all of the information as to the banks entitlement is already known. the only thing that is not known is that what point they would decide drawdown. the colleague corrected me and said no, that is not exactly correct because it is not known
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what banks have agreements that permit them to draw down certain amounts. that is information which is information of an action of the fed, not of a bank. the information of how much a bank is entitled to draw down and on what terms. that is information that is of an action of the fed. is that right? >> that is not correct. every institution is eligible to go to the discount window and a bar when they need liquidity. there is a slight distinction between primary credit available to generally financially sound institutions and secondary credit which is available to institutions, not eligible to primary credit. we don't disclose that information because it says something about the financial condition of the institution to go to go --
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>> who says [unintelligible] >> the bank determines the amount it may borrow by the amount of its request and the amount of eligible -- >> under the pre-existing agreement, who sets how much the bank is eligible to borrow? >> is determined by the amount of collateral they have the pledge. there is no upper limit on the amount of discount window. banks are only going to have a certain amount of eligible collateral. if you reveal the amount of the loan, you're showing that they had a certain amount of collateral and the liquidity needs at that institution in the bank needs a million dollars. it might be less serious than $10 million. it says a great deal about the
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privileged information at that institution when you look at the actual amount of the request. and the federal reserve does not determine the amount of these loans. it is determined by the eligibility set of the institution. and you may have sufficient high-grade collateral. that is what determines the amount of these loans. >> the collateral given with respect each loan is information that lies in the hands of regional banks? >> the collateral given as determined by the borrower. >> the board has disclaimed any duty to seek that information from the regional banks? >> the board is not obligated to obtain records that it does not already have. >> i am looking at the code of
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federal regulations. it says that the records include -- >> the language says that it includes the regional reserve bank, activities for or on behalf of the board. >> you are saying that when regional bank loans to a borrower in the region, it is not acting for or on behalf of the board itself? >> that is correct, your honor. your honor, the regional reserve bank service depository has institutions in their district.
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they also conduct open market operations buying and selling securities on the market. the funding by the federal reserve generates a -- >> the regional federal reserve bank science without consulting n.y. for the board, to a lone $500 million on a certain amount of collateral and the moderate comes -- the money comes from their pockets? >> that they supervise the activities, and they do act -- >> it would be strange not to have some sort of supervision over the loans. >> certainly, your honor. >> when they do that, they consult with the federal reserve board. >> not with individual loans. the overall programs by the reserves banks we review and
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determine interest rates. they did a lot activities are under the federal reserve bakes under the supervision. >> let me go back to my question. they want $500 million. you're saying that the person behind that discount window wearing a shade says, here's your $500, million. >> to make individual loan determinations. the actual direction of the day- to-day business of lending will be carried out by the regional federal reserve bank. >> the business of lending, --
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>> it must be authorized by -- with respect to the emergency facilities, they were authorized an advanced by the board. the day-to-day operations are conducted by the regional federal reserve bank. >> i am confused once again. i had understood from your colleagues that there is nothing revealed by the making of the loan other than the fact that the individual bank decided, for whatever reasons, that it should come and drawdown, putting up collateral and draw down to an extent that it has entitlement to do it under a previously made agreement. you are talking about discretionary decisions made by the local federal reserve banks. what is the nature of those decisions? >> is not a discretionary
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decision of the federal reserve bank. they determine whether or not the collateral fits within guidelines. once that is determined, usually it is pre-determined. it needs liquidity and it will take about -- to get a lot about. -- to get the loan amount. >> the eligibility of the borrower based on past performance is one that is set by the board. >> and regulations specify overall terms, but the day-to- day operations are conducted by the federal reserve banks. they are banks, and they land. >> they are their own agency, then. >> they are not agencies, they are persons under -- each federal reserve bank is owned by member banks in the district. [unintelligible] a majority of those boards are
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reported by the independent private banks in the district. they are not agencies with rulemaking authority. they don't have to go -- >> they describe the regional banks as agencies. >> we do not describe them as agencies. earlier in the industry's case, it is not necessary to claim exemption. you may have to agencies. you may have an outside party acting as a consultant to the agency in extension -- >> i don't understand that at all. didn't you evoke exemption 5? >> yes. >> of the one that exempts disclosure of communication between agencies? >> in addition to communications between agencies, it encompasses any information that
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as part of the deliberative process, even if that information is supplied a a personal consultant, your honor. in effect, assisting the agency in the collaborative process. dodge the board put the conception is that the local regional banks are consultants? >> simply for purposes that the exemption 5 is in this case. >> i know of someone can be an agency or not for the purpose of this or that. -- i don't know if someone can be an agency or not for the purpose of this or that. >> we go back to the history of the federal reserve bank -- >> i want to go back to the indication of exemption 5. >> of the fact that we evoked exemption 5 does not make the agency's -- make them agencies because of the function we were speaking of.
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they were acting as consultants to the board. we note that the supreme court held that exemption 5 was applicable to sensitive commercial information not otherwise available if it would impair the government's monetary functions. we were relying on a monetary policy exemption created by -- they did not decide whether it was an agency. >> it will be a clearing house. >> thank you, your honor. >> may it please the court, i am from the clearing house association. i like to focus on the statutory language. the statute says financial information. this is clearly financial information. there has been discussion about obtained from a person. i would like to focus on privileged and confidential. there is no question that since
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1913 when the depository window was set out, the fed has consistently taken the position that this information is confidential. banks going to the discount window have relied upon the expectation of confidentiality, something that this court can take into account. it is something the should consider. no other central bank discloses loan by loan, bank by bank, emergency landing information. the terms of the -- >> they have a freedom of information act. >> what we do is beyond what other central banks do. what they are seeking here is to have this court do something that goes beyond it. they want this information bank by bank and should go to congress.
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>> it seems to me that is the other way around. if the fed takes the position, and it might be a very valid position, that very bad things would happen if it were observed, then the fed and the banks and all the other interested persons should go to congress and say, look, you have messed up because you have exposed us to something that could be very harmful to the economy. >> the standard that this court and other courts have adopted in looking at the exemptions is the likelihood of competitive harm. not the eminence or certainty of competitive,, the likelihood of competitive harm. >> where is it in the statute? dodge the statute just says confidential.
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>> the courts and the parts case have interpreted the issue, but the banks clearly treat this information as confidential. there is not a single disclosure where i have seen that the bank has said they will take out one man dollars. they have said in an aggregate basis, hundreds of banks have gone to the discount window. no bank has never disclosed this information. >> how does that fact relate to the standard law with respect to what must be revealed in sec filings. isn't the standard for that roughly what investors would be interested in knowing? >> the information has to be material.
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no bank has made the judgment has -- that it is material. >> are you saying that if this case were before us, if the question were a different question involving an sec filing, we should really care whether the bank was in an emergency distress situation requiring funds on disadvantaged terms to get over its crisis? dodge that is exactly the point, that there might be a situation where the bank would have to disclose the discount window and we are not aware of the situation. the problem here is that the press will likely have a blanket rule to change hundreds of years of policy in this country. that would like this court to second-guess the affidavits of some of the most senior people talking about the risks of
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providing this information. from the situation in the u.k., we know what happens when this sort of information gets out. you do run the risk of a bank run. we have seen situations in the past few years with in the mac where there have been bank problems. banks operate not only in terms of their confidence, but their confidence is critical. >> when a congress messes up, courts to fill the gap and say, we think congress did something stupid here. we think that congress failed to understand the risks that they were exposing in the fact -- that they were exposing the financial system to. the court should fill the gap rather than congress? they should change the law that congress passed so that bad things don't happen? >> no.
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in 1913, -- foya was adopted in 1966. this information was treated confidential by the borrowers and the reserve banks. there was an unguarded declaration that explained why this information is repetitively sensitive. the circumstance that we now -- >> i understand all that. my only point is that the statute does not talk about that. >> the statute says privileged and confidential. it is likely to cause substantial competitive harm to someone that provides information -- >> it is certainly not an obvious reading of that term to cover loans made by the federal government or actions taken by
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the federal government. one that naturally interprets information obtained from the bar were baby to the extent that -- from the borrower. it would become census information. there are lots of things. ordinarily, one does not think of actions taken by the federal government as being information obtained from the bar or just because you can discern from the fact the federal agency the other person must have asked for it. >> there are numerous cases where it has been applied to protect information provided by someone interfacing with the federal government because the information was competitively sensitive. there can be no question that we are dealing with banks. banks are subject to losses of confidence.
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we have had financial panics starting in 1907 that gaudy federal reserve in the first place. if a bank goes to a discount window, -- that information is coming from the bank. chief judge press got agree that the fact that the bank was seeking the loan from the fed was information coming from the bank. there are numerous cases where that has deemed to be information from a borrower. the problem is that banks will now use the discount window if it will be made available in 20 days. perhaps they come available within a year. are there any examples you have deduced, certain examples where it becomes known that it banquette a liquidity crisis a
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year earlier or 18 months earlier? >> there have not been examples that are telling where the information has been disclosed. >> you're describing examples where the information leaps out somehow and people panicked. >> the point of staleness depends on the particular bank. it may be the fact that they go to the discount window a year ago. for another bank, it could be relevant. they might be able to get there will have that categorization that one bank is strong and one bank is weak it is clearly confidential information. companies don't go and banks don't go and disclose -- >> is the relative streng

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