By Jonathan Weil
Bloomberg News Columnist

Here's a little secret the Federal Reserve Board doesn't want you to know. On September 24, 2008, while financial markets were collapsing, Morgan Stanley borrowed $3.5 billion through the Fed's oldest lending program, the 98-year-old discount window.

The Fed has long claimed that releasing this type of data could trigger bank runs, public hysteria, death spirals at financial institutions large and small, and other horrible outcomes. Yet I've got a hunch Morgan Stanley somehow will survive this revelation. Mass panic will not ensue. The world will not end.

This is the kind of information the late Bloomberg News reporter Mark Pittman was seeking when he filed a Freedom of Information Act request with the Fed in May 2008, nine months after the financial crisis began. Among other things, he asked for documents showing which banks had borrowed money under the Fed's emergency-lending programs and the details of those loans.

The Fed blew off his request. Bloomberg LP, the parent of Bloomberg News, responded by suing the central bank. The company won both at the district court level and on appeal. This week, the Supreme Court decided to let those rulings stand. And so almost three years after Pittman sent his original FOIA letter, the Fed finally will have to comply with the law.

Fox News is pressing a similar request concerning Fed loans from August 2007 to November 2008. Much of the information the two companies sought has been disclosed already. The Dodd-Frank Act, which President Barack Obama signed last July, forced the Fed to release details of many of its bailout programs. Still, the Fed has yet to divulge which banks borrowed through its discount-window program. It won't be long now, though.

Stigma Avoidance

The discount window functions as a lifesaver through which qualifying borrowers can secure emergency liquidity during times of severe stress. Historically the Fed had kept the names of borrowers confidential on the grounds that disclosure could stigmatize them in the public's eyes, even though it was the public's money the Fed was lending.

As it turns out, the information about Morgan Stanley's $3.5 billion discount-window loan has been sitting on the Financial Crisis Inquiry Commission's website since last month. The panel didn't mention it in its final report. And nobody had written a story about it before. So there: Now it can be told.

You can see the raw data by clicking here. The link takes you to a Morgan Stanley spreadsheet showing the company's day- to-day liquidity changes during a two-week period in September 2008 when the New York-based bank was fighting for survival. (You may need to magnify the pages 400% to see all the numbers.)


The loan came three days after Morgan Stanley said it had received Fed approval to become a bank holding company, giving it access to the discount window for the first time.

A Morgan Stanley spokesman, Mark Lake, confirmed that my reading of the spreadsheet is correct. The bank had stamped the document "confidential treatment requested" when it handed it over to the crisis commission. The panel released it anyway, apparently seeing no harm.

The Fed's arguments for keeping this sort of data secret were transparently bogus. One Fed economist, Brian Madigan, said in an affidavit that disclosing discount-window borrowers' names "can quickly place an institution in a weakened condition vis- a-vis its competitors by causing a loss of public confidence in the institution, a sudden outflow of deposits (a 'run'), a loss of confidence by market analysts, a drop in the institution's stock price, and a withdrawal of market sources of liquidity."

'Inherent Risk'

U.S. District Judge Loretta Preska in Manhattan rejected that line of reasoning as bunk.

"The risk of looking weak to competitors and shareholders is an inherent risk of market participation," she wrote in her August 2009 decision ordering the Fed to release the documents. "Information tending to increase that risk does not make the information privileged or confidential." The Second Circuit Court of Appeals in New York upheld her ruling.

Still, the banking industry kept fighting. Identifying banks that tapped the discount window during the credit crisis would be harmful even years after the fact, the Clearing House Association, representing the largest U.S. commercial banks, wrote in an October 2010 petition asking the Supreme Court to intervene. Disclosure would let the public "observe their borrowing patterns during the recent financial crisis and draw inferences-whether justified or not-about their current financial conditions," it said.

New Requirements

They'll just have to get used to that, though. Under Dodd- Frank, the Fed will be required to publish details of its discount-window loans, including borrowers' identities, after two years. That's why the Obama administration stepped in last year and urged the high court not to take up the case, saying the new disclosure rules made an appeal by the Fed unnecessary.

This whole sorry exercise by the Fed has shown the central bank at its worst. The Fed lost on the merits. Yet it succeeded in serving notice that anyone who challenges its judgments must be prepared to spend absurd amounts of time and money on litigation as the price for busting its wall of secrecy and holding its leaders accountable.

Most citizens, and news organizations, would be deterred by such tactics. Mark Pittman, who died on Nov. 25, 2009, must be smiling.