The secrecy of the FDIC, FOIA edition

By Felix Salmon
February 24, 2011
Russell Carollo, of Mark Cuban's JunketSleuth, has a great post up today about the way in which the FDIC aggressively rebuffs FOIA requests that other government agencies are happy to comply with.

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Russell Carollo, of Mark Cuban’s JunketSleuth, has a great post up today about the way in which the FDIC aggressively rebuffs FOIA requests that other government agencies are happy to comply with. The FDIC has long been a hugely powerful and unaccountable arm of the government, and its letters to Carollo stink of arrogance and entitlement.

The FDIC repeatedly refused to provide any information on travel by its employees, claiming, among other things, that it has no central database, that Junketsleuth’s requests were too broad and that even if they had the information, the public wouldn’t have a right to see it…

Although the FDIC has rejected all of JunketSleuth’s Freedom of Information Act requests, more than 20 other agencies that got identically worded letters turned over their travel databases, which contain hundreds of thousands of records…

In addition, more than 30 agencies have provided JunketSleuth with other types of records. Those include hotel bills, airline receipts and other documents related to travel by top agency officials and other government employees, or to travel to specific destinations that we asked about.

But the FDIC provided nothing.

In response to JunketSleuth’s initial request for data, the FDIC claimed that our request – again, worded identically to those that yielded voluminous records from many other agencies – did not “reasonably describe” the information being sought.

The FDIC also said that we did not specify a time frame for the records we sought, suggesting that our request for data could be interpreted to mean all travel-related information compiled since the agency was created in 1933.

The FDIC seems perfectly happy to send responses to FOIA requests saying that it will provide no information at all on the grounds that the FOIA “could be construed to include” some impractically massive amount of information. It’s a textbook example of bad faith: what’s clearly happening here is that the FDIC has first decided that it’s not going to provide anything at all, and then instructed its lawyers to find some colorable reason why the request is being denied.

Why is it that the FDIC is being so willfully obstructive even as other agencies, including the Department of Defense and the FDA, are much more cooperative? The answer is surely the culture of secrecy and of we-know-best that pervades the financial sector generally, including the areas where it seeps into government. The Fed, of course, is just as bad, if not worse — it has a habit of dismissing FOIA requests out of hand, on the grounds that it’s not a government agency. (Technically, it’s a privately-owned corporation.)

Whenever information has emerged which Treasury or the Fed initially wanted to keep secret, the deleterious effects have been invisible — once again, the risk of something bad happening as a result of disclosure is an excuse used to justify a blanket decision not to disclose anything, rather than the reason for that decision. It’s worth remembering here that immediately before he was Treasury secretary, Tim Geithner ran the hugely secretive New York Fed, and did nothing to improve its transparency.

Government is, by its nature, a massive bureaucracy, and it’s very hard if not impossible to change an ingrained culture in such places. But a bit of top-down pressure could only help. Perhaps the White House could appoint an “openness czar” or similar to whom anybody getting serially rebuffed could appeal. Because this secrecy is ultimately self-defeating, not to mention politically damaging.

(Cross-posted at CJR)

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Felix S. asks: “Why is it that the FDIC is being so willfully obstructive even as other agencies, including the Department of Defense and the FDA, are much more cooperative?”

As a general comment, bank regulatory agencies have very wide internal discretion on expenses, and they would prefer not to be scrutinized, thank you very much.

More important, bank regulatory agencies generally have limited external oversight. They are funded by bank fees (OCC, OTS) or bank premiums (FDIC) not by the Congressional budget process. Once those bank fees/premiums are paid, the contributors (banks) have absolutely no audit or review power over how the funds are spent. And Congress can do little about this except excoriate the agencies publicly for a day or two. The Inspector General/GAO does perform audits but not often enough.

And the current FDIC reaction to FOIA has two other specific causes: first, the FDIC Fund is running a deficit (it is in the 2nd year of a 3-year prepaid premium that provides the Fund cash but not income).

When the crisis hit, the FDIC began hiring consultants and outside legal experts not permanent staff and internal counsel. These external contractors are paid by the hour making the FDIC hugely inefficient for managing bank failures. Whenever you pay an investigator or lawyer by the hour to analyze a problem (a bank failure or near failure), the incentive for them is to keep digging deeper/wider/more far afield in order to keep the billable hours up. The FDIC has responded to this ballooning expense by lagging their payables to extraordinary terms–200+ days in some cases–in order to reduce apparent expense and to minimize the fund deficit until they can buy time to accrue additional income from the prepaid premiums.

Practical result: this small-bank failure crisis will be stretched out over 3-7 years so the FDIC doesn’t have to borrow from the Treasury for the clean up. So don’t expect a reasonable FOIA release anytime soon.

Second, Chairman Bair has announced that she is leaving in June 2011. While she has done a good job during a tough time–certainly standing up to Paulson, Geithner et. al. who were trying to raid the FDIC fund wasn’t easy–she is now very surely protecting her legacy. Why would she want to release records on a FOIA request?

So the FDIC FOIA stonewall seems to be a case of “apres moi, le deluge.” But, the coming flood will be more like drops of water akin to economic Chinese water torture.

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