Central bank secrecy datapoint of the day

By Felix Salmon
December 12, 2011
moaned on many occasions about the secrecy of the Federal Reserve, which can and should be much more transparent than it is.

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I’ve moaned on many occasions about the secrecy of the Federal Reserve, which can and should be much more transparent than it is. But Bloomberg’s latest story on secretive Fed lending is a helpful reminder that while the Fed is opaque by US government standards, it’s positively crystalline by global central-banking standards.

The subject of the story is the set of unlimited swap facilities that the Fed set up during the crisis with the world’s big central banks. Any time they wanted to lend out dollars, they could borrow as many dollars as they wanted from the Federal Reserve, putting up their own domestic currency as collateral. At the peak of the crisis in December 2008, the Fed had lent out as much as $586 billion under these facilities, most of it to the European Central Bank.

Bloomberg’s problem with this is that once you’ve followed the money to the ECB, the trail goes cold — the ECB won’t say which banks it lent those dollars to. Because while the Fed has revealed the names of the banks that it lent money to under various programs, no other central bank has followed its lead.

The ECB won’t publicly disclose names of borrowers under any circumstances and doesn’t share the identities outside the 17 euro-area central banks, a spokesman wrote in an e-mail…

The Bank of Japan, which tapped 3.9 percent of the aggregate swap dollars according to the GAO, has no plans to publicize borrowers’ identities and declined to comment on whether it shares the names with the Fed, a spokesman said. The Swiss National Bank, which accounted for 4.6 percent, “as a matter of principle” doesn’t publish counterparties, said Walter Meier, a spokesman.

The Bank of England doesn’t publish details of individual financial institutions’ use of its facilities.

Placed in context, then, the Fed’s secrecy and resistance to releasing information makes a bit more sense: it’s just doing what central banks all over the world do. Dean Baker is quoted in the Bloomberg article as saying that “U.S. policy makers should encourage international standards for disclosure through talks at forums such as meetings of the Group of 20 nations.” But you can be sure that any such encouragement would go nowhere, since all these central banks are independent and would start screaming about how their independence was being compromised if politicians started telling them what to do.

Besides, the Fed was hardly enthusiastic about releasing the information that we’ve seen so far.

Personally I think it’s vital that the public be able to see charts like this one, showing the degree to which individual banks were saved by central bank lending; the case for secrecy — which always for some reason includes the word “stigma” — is pretty weak. Has anybody ever tried to quantify this “stigma” effect? By all means put a two-year delay in before the lending is revealed. But letting the public know what you did during the course of a crisis two years ago is an important part of the accountability that any central bank has to the country or currency area as a whole. And if you think the Fed is bad on such matters, it’s worth reminding ourselves occasionally that every other central bank is significantly worse.


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“…letting the public know what you did during the course of a crisis two years ago…”

Indeed. I’d like to see all discussions of secrecy be framed as questions, not of whether to disclose (—instantly? —after two years? —after a century?), but instead of how long to delay disclosure. “Never” then becomes an obviously extreme and indefensible answer. Generally, the question of how long to delay would tend to focus discussion on who benefits from secrecy, and why, and whether or not the reasons are legitimate.

Posted by E.D.R. | Report as abusive

I do agree with you about this, Felix: Dean Baker/ Bloomberg seems to forget that G-20 nations’ policy makers don’t generally tell the Federal Reserve Bank what to do. We wouldn’t take kindly to that. So WHY would other central banks be receptive to such direct interference in their activities?! (The U.S. already has a certain perception problem for interfering in the affairs of other countries.)

Also, there ARE standardization efforts in progress, specifically in accounting, such as international GAAP. That’s a better way, rather than through politicians.

Posted by EllieK | Report as abusive

I wonder how many of these international banks ended up selling this free money back to us or their respective treasuries for a easy profit?

Posted by desimal | Report as abusive

“Has anybody ever tried to quantify this ‘stigma’ effect?” Yes. See, for example:

http://libertystreeteconomics.newyorkfed .org/2011/08/is-there-stigma-to-discount -window-borrowing.html

Posted by uprof | Report as abusive

Yet more lies from Bloomberg.

If you want to read some actual reporting not dishonest BS from lying scum:

http://narrowtranche.blogspot.com/2011/1 2/feds-liquidity-swap-and-latest-hype.ht ml

Posted by Danny_Black | Report as abusive

Ohhh! I’m happy I checked back. Good find, UProf! LibertyStreetEconomics is the NY Fed’s blog on the down-low. (Well, it isn’t on the down-low, they make the affiliation clear by virtue of the URL and banners on every page). That is such a perfect response as well, specifically to the very words used in the column, about the “stigma effect”. Thank you for posting the link. Let’s see… dated August 2011. Sounds like Felix’s new personal assistant (research assistant?) could have done a better job and found this too. Liberty Street isn’t just for the cool econ crowd: Common folk like me have access too!

Also, I’ve just noticed the Narrow Tranche recently. Quite nice too! And yes, Bloomberg does read like a demented blogger lately (not any single one in particular), which is not inconsistent with what Felix is saying, though of course not as extreme.

Posted by EllieK | Report as abusive