Academic journal article William and Mary Law Review

Understanding Confidentiality: Program Effectiveness and the Freedom of Information Act Exemption 4

Academic journal article William and Mary Law Review

Understanding Confidentiality: Program Effectiveness and the Freedom of Information Act Exemption 4

Article excerpt

TABLE OF CONTENTS

INTRODUCTION
I. BACKGROUND
    A. Financial Crisis and Federal Reserve Lending
    B. FOIA Requests and Court Decisions
II. LEGISLATIVE HISTORY
III. DEVELOPMENT OF EXEMPTION 4 LEGAL DOCTRINE
    A. National Parks and the Narrow
       Test for Confidentiality
    B. 9 to 5 and Critical Mass Embrace a Broader
       View of Confidentiality
    C. Exemption 4 in the Second Circuit
IV. TRANSPARENCY AND FINANCIAL INFORMATION:
    IS DISCLOSURE ALWAYS GOOD?
    A. Program Effectiveness Versus Public Interest
    B. Treating Financial Information Differently
    Under FOIA
V. A PROPOSED SOLUTION
CONCLUSION

INTRODUCTION

On August 22, 2007, the four biggest banks in the country--Citigroup, Bank of America, JPMorgan, and Wachovia--each borrowed $500 million directly from the Federal Reserve Bank of New York. (1) At the time, observers saw the move as largely symbolic--a coordinated attempt by the Federal Reserve System (Fed) and these major financial institutions to remove preemptively the stigma associated with borrowing from the discount window. (2) Within a month, borrowing from the discount window rose to the highest level since the day after the September 11 terrorist attacks. (3) As the financial crisis unfolded, the Fed continued lending, and by August 2009, its balance sheet approached $2.08 trillion. (4)

Public and private interests clashed as the Fed refused to disclose information regarding these transactions, such as the identities of the borrowers, the amount of the loans, and the collateral accepted in return. (5) As a result, in the midst of the financial crisis and this unprecedented level of Federal Reserve lending, the U.S. District Court for the Southern District of New York heard two cases, involving the Bloomberg and Fox News media outlets, seeking to gain information regarding the Fed's lending practices pursuant to the Freedom of Information Act (FOIA). (6) In both cases, the Fed rejected the requests on the basis that the information was exempt from disclosure under FOIA Exemption 4, (7) which exempts from disclosure "commercial or financial information obtained from a person and privileged or confidential." (8) The opposite conclusions reached by the two courts (9) are representative of the divergent approaches courts have taken in their attempt to understand the word "confidential." (10)

The ruling of the Second Circuit Court of Appeals, endorsing the narrow view of confidentiality taken by the district court in Bloomberg, failed to resolve this problem. (11) The interpretation of confidentiality that the Second Circuit endorsed is narrow because it views the two-pronged test for confidentiality as exclusive. (12) The program effectiveness test, by contrast, allows an agency to withhold information in situations in which the disclosure of information that serves a valuable purpose and is useful for the performance of statutory duties would disadvantage the agency. (13) This approach espouses a broad view of confidentiality because it adds a third prong to the otherwise dichotomous test. (14)

This Note argues that given the legislative history and underlying purposes of FOIA, the program effectiveness test rejected by the Second Circuit is a proper approach to interpreting the statutory meaning of the word "confidential." (15) Furthermore, an examination of the costs and benefits of the disclosure of financial information that would affect an agency's performance of its statutory duties justifies overcoming FOIA's default presumption in favor of disclosure. Part I of this Note discusses the factual background of the Second Circuit cases, including the relevant details of the financial crisis, the mechanics of Federal Reserve lending, and the information sought in FOIA requests. Part II examines the legislative history of FOIA to show that the program effectiveness test protects specific congressionally contemplated interests. …

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