Skeptics of the Federal Reserve System will read with interest Bloomberg Businessweek documents the latest efforts to move the central bank toward more transparent operations:
For the Fed, keeping information from investors is nothing new. Congress last year had to pry loose the details of $3.3 trillion worth of crisis-fighting programs that relied on the central bank’s vault. In the late 1990s the Fed successfully resisted the SEC’s attempt to require banks to stop using hidden funds, or “cookie jar reserves,” to smooth quarterly earnings, says Turner.
The discount window is the Fed’s oldest lending channel and traditionally its most secretive. Banks have been free to use it without publicly revealing the fact since the Fed’s 1913 birth. Loan demand varies, depending on market conditions and seasonal factors. In January 2007, before the financial crisis erupted, banks owed the Fed just $1.3 billion for discount window loans. By October 2008, borrowings peaked at $111 billion. One bank, Chicago-based Park National, owed the Fed $345 million before regulators shut it down in October 2009, according to data gleaned from a Freedom of Information Act request. The most recent data, for Mar. 23, show banks owing just $13 million.
Some former Fed insiders say the public should routinely be clued in when private institutions tap the public purse, in the same way the SEC requires companies to inform investors of major financial events. “This should be material information. Investors should have the right to know,” says Roberto Perli, a former Fed board economist who is managing director of International Strategy & Investment in Washington.
