Opinion ID: 218449
Heading Depth: 2
Heading Rank: 2

Heading: Bear Stearns Financing and FOIA Request

Text: In early March 2008 the Board became aware that Bear Stearns, an important participant in many financial markets, was experiencing severe liquidity problems and might soon declare bankruptcy. Stefansson Decl. ¶ 7.2 Bear Stearns was a holding company comprised partly of registered broker-dealers and, as such, was regulated by the United States Securities and Exchange Commission (SEC), not the Board. Winter Decl. ¶¶ 10-11.3 Moreover, because Bear Stearns was not a depository institution, it was ineligible to borrow through the Federal Reserve’s regular short-term lending program. Stefansson Decl. ¶ 7. The tools with which the Board could respond to Bear Stearns’s liquidity problems were accordingly limited. Believing that a Bear Stearns bankruptcy would have far- 2 Coryann Stefansson is an Associate Director of the Board’s Division of Banking Supervision and Regulation, a position she has held since May 2007. Previously she was an FRBNY Assistant Vice President in Bank Supervision and Regulation from 1998 until 2007. Stefansson Decl. ¶ 1. 3 Margaret Winter is the FOIA and Privacy Act Officer of the United States Securities and Exchange Commission. Winter Decl. ¶ 1. 5 reaching and negative effects on financial markets, however, the Board and Reserve Bank staff surveyed those institutions subject to the Board’s regulation to assess their exposure to Bear Stearns. Id. ¶ 8. In particular, they sought to ascertain the exposure of large complex banking organizations (LCBOs).4 Id. On March 13, 2008 the SEC notified the Board and the FRBNY that Bear Stearns had inadequate resources to meet its obligations and planned to declare bankruptcy the following morning. Id. ¶ 7 The Board met the following day—March 14—and determined “that, given the fragile condition of the financial markets at the time, the prominent position of Bear Stearns in those markets, and the expected contagion that would result from the immediate failure of Bear Stearns, the best alternative available was to provide temporary emergency financing to Bear Stearns through an arrangement with JPMorgan Chase & Co.” Thro Decl. Ex. A (minutes of Board 3/14/08 meeting).5 The Board accordingly authorized the FRBNY to extend credit to JP Morgan to allow JP Morgan to provide a temporary loan to Bear Stearns. The FRBNY, in turn, approved the loan.6 The loan allowed Bear Stearns to avoid 4 “LCBOs are characterized by the scope and complexity of their domestic and international operations; their participation in large volume payment and settlement systems; the extent of their custody operations and fiduciary activities; and the complexity of their regulatory structure, both domestically and in foreign jurisdictions. To be designated as an LCBO, a bank holding company or foreign banking organization supervised by the Federal Reserve must meet specified criteria to be considered a significant participant in at least one critical or other key financial market.” Stefansson Decl. ¶ 3. 5 Alison Thro is “the most senior attorney in the Board’s Legal Division responsible for reviewing FOIA requests.” Thro Decl. ¶ 1. 6 The FRBNY made the loan through JP Morgan because Bear Stearns was not a depository institution and therefore was not eligible 6 filing for bankruptcy but, on March 16, the Board and the FRBNY authorized a second loan to JP Morgan to facilitate JP Morgan’s acquisition of Bear Stearns. In December 2008 McKinley submitted to the Board a FOIA request for “further detail on information contained in the [March 14, 2008] minutes of the Board.” Thro Decl. Ex. A (FOIA request). He specifically sought “any supporting memos or other information that detail the ‘expected contagion that would result from the immediate failure of Bear Stearns’ and the related conclusion that ‘this action was necessary to prevent, correct, or mitigate serious harm to the economy or financial stability’ as described in the meeting minutes.” Id. After having received no response from the Board by July 2009, McKinley filed a complaint in district court seeking a declaratory judgment that FOIA entitles him to disclosure of the information he requested and seeking disclosure of that information. Compl. ¶¶ 36-47. The Board then produced 120 pages of previously released or publicly available documents on August 11, 2009. McKinley v. FDIC, 744 F. Supp. 2d 128, 133 (D.D.C. 2010). On September 30, 2009 the Board produced an additional forty-eight pages in full and twenty-seven pages with information redacted. Id. It also identified and withheld 163 pages pursuant to FOIA Exemptions 4, 5, 6 and 8. Id. Eight of the 163 withheld pages originated with the SEC and the Board referred the disclosure determination regarding those documents to receive funds directly from the FRBNY’s discount window. Stefansson Decl. ¶ 7. “The Discount W indow is the long-standing program through which the twelve Federal Reserve Banks make shortterm loans (often overnight) to depository institutions, and it can serve as an emergency, back-up source of liquidity for borrowing depository institutions that lack other options.” Bloomberg, L.P. v. Bd. of Governors of Fed. Reserve Sys., 601 F.3d 143, 145-46 n.1 (2d Cir. 2010) (internal quotation marks omitted). 7 to the SEC.7 Id. The remaining withheld pages contain information collected and used by the Board and the FRBNY to assess the exposure of regulated financial institutions to Bear Stearns as well as communications between Board and FRBNY personnel. See Thro Decl. ¶¶ 17-23 (describing withheld documents); Stefansson Decl. ¶¶ 12-14 (same). On January 7, 2010 the SEC informed McKinley that it was withholding the eight documents referred to it by the Board pursuant to FOIA Exemptions 5 and 8. Winter Decl. ¶ 5. The Board moved for summary judgment on February 1, 2010 and McKinley filed a cross-motion for summary judgment. The Board produced a Vaughn index identifying the withheld material by document (rather than page), briefly describing the withheld material and listing the FOIA exemption pursuant to which the document was withheld. See Vaughn v. Rosen, 484 F.2d 820, 826-28 (D.C. Cir. 1973). McKinley does not challenge the Board’s withholding of five documents pursuant to FOIA Exemption 6. He challenges only the Board’s reliance on FOIA Exemptions 4, 5 and 8. The district court held that the withheld documents are protected from disclosure by FOIA Exemption 5 or, in the alternative, by Exemption 8 and granted summary judgment in favor of the Board. McKinley, 744 F. Supp. 2d at 135-45. The court did not address the applicability vel non of FOIA Exemption 4.8 Id. at 145. McKinley timely filed a notice of appeal. 7 McKinley does not discuss the SEC documents on appeal and has thus waived any challenge to the withholding of those documents. See New York v. EPA, 413 F.3d 3, 20 (D.C. Cir. 2005) (argument not raised in opening brief waived). 8 McKinley’s complaint originally included FOIA claims against the Federal Deposit Insurance Corporation but they were ultimately dismissed as moot. McKinley, 744 F. Supp. 2d at 131 n.1. 8