BOB GARFIELD: This week, while the Financial Crisis Inquiry Commission was convening on Capitol Hill to identify the roots of the financial crisis, lawyers from the Federal Reserve were actually asking a U.S. appeals court in New York to strike down a lower court decision that ruled in favor of banking transparency, specifically that the Federal Reserve must disclose details of loans to troubled financial institutions in the worst days of the crisis. The Fed had been sued by Bloomberg News, whose Editor-in-Chief Matt Winkler spoke to us in late 2008, wondering what collateral had been put up by those struggling banks.

MATT WINKLER: What is the value of these assets? If the Fed is taking them on its balance sheet, that means the Fed is buying and selling assets from these troubled financial institutions to help them so that they can lend money, as they used to lend money, in a normal way. The marketplace would benefit from knowing what those values are. And as soon as the marketplace does know, well, that’s going to help the market begin recovery. It’s kind of like once you know what the disease is then it’s a lot easier to begin thinking about, well, what should the cure be.

BOB GARFIELD: The debate revolves around the Fed’s so-called “discount window.” This is where historically banks with short-term cash flow or liquidity problems would borrow money for a day or two. In the crisis, though, the Fed was lending for up to three months at the discount window, a sign of problems far beyond short-term cash flow, which is exactly why the Fed doesn't want to name the borrowers, lest the information trigger a panic and further destabilize an already fragile banking system. Robert Giuffra represents the Clearing House Association, which has joined with the Fed in the court battle against Bloomberg News, and he argues that the discount window doesn't work if it’s too transparent. Giuffra joins me now. Bob, welcome to the show.

ROBERT GIUFFRA: Hi, how are you, Bob?

BOB GARFIELD: Well, thank you. So, are we talking about trillions of dollars here dispensed at the discount window?

ROBERT GIUFFRA: You’re talking about many, many billions of dollars, and it could add up to as much as a trillion dollars. But discount window lending is, you know, heavily collateralized loans available to any depository institution in the United States - small banks, big banks - and is intended to deal with liquidity issues that banks can have because it’s important to remember banks don't maintain all of the money that they might need to pay back all the depositors on a given day. And we want banks to lend the money out.

BOB GARFIELD: The question is, how good is the collateral. These were, by definition, troubled assets that were put up as collateral. And what Bloomberg has been trying to find out is whether the banks put up collateral of value or junk from the basement.

ROBERT GIUFFRA: Well, the collateral, in fact, was not junk collateral. The types of collateral the Fed is looking for is already public. I mean, you can get that information by looking on the website. The question is, you know, what was the precise collateral that Bank A or Bank B put up, with respect to a particular loan? And that’s a different question.

BOB GARFIELD: What harm is there to the Fed or to the borrowers if the public would know exactly what kind of collateral the borrowers have put up?

ROBERT GIUFFRA: There is the stigma that is associated with going to the discount window and recognized by central bankers around the world. In fact, no central bank in any developed country that I'm aware of discloses the kind of bank-by-bank loan information that’s being sought by Bloomberg. And the concern is that if there’s information about the fact that a particular bank, and it can be a small bank, has gone to the discount window, it might set off speculation about the safety and soundness of that bank, entirely unwarranted, and there may be an overreaction in the market.

BOB GARFIELD: And this is not a hysterical fear, necessarily. At the beginning of the subprime crisis, a leak about Northern Rock Bank’s problems by the BBC resulted in a run on that bank.

ROBERT GIUFFRA: That’s correct and, in fact, the British government wrote a long report about what happened there. And, exactly as you said, there was a run on the bank, which was caused by the speculation that surrounded the fact that the bank had gone to the U.K. equivalent of the discount window. There was a run on the Citibank Asian offices in the early nineties that was caused by rumors that Citibank had used the discount window. So, this is a real concern. And, in fact, banks have paid in the past substantially more money to borrow in private markets because they're concerned about the potential for a leak. You know, you want banks to be lending money, and if they have to go and fund themselves through expensive sources of liquidity, banks will make less loans. Less loans will ultimately result in less jobs.

BOB GARFIELD: Maybe, but if there were more transparency in the system, wouldn't the market adjust to the sort of normal business practice of financial institutions going to the discount window? Wouldn't there be less panic in the market if what is, in fact, a standard practice were simply more transparent?

ROBERT GIUFFRA: Well, transparency is an important virtue and something we want to encourage in the business context. Transparency needs to be balanced with the risk of having information be misused. SEC disclosure rules require public companies, including banks, to issue quarterly reports to shareholders. They disclose things like, you know, the amount of short-term borrowing that the company has engaged in. Those orderly disclosures prevent overreaction by the market, not, you know, every day, whenever it goes to the discount window, having to put out all of this information explaining why it did it.

BOB GARFIELD: The loans we're talking about are, are now two years old, and I, I suppose perhaps they may have caused some disruption in the marketplace, had the exact nature of the lending been disclosed in real time a couple of years ago. But now, a couple of years later, it’s hard to imagine that there would be speculation in the marketplace over what happened in 2008, and yet you’re still fighting the disclosure. Why is that?

ROBERT GIUFFRA: First, banks are not similarly situated, so you can't really have a blanket rule that says, well, if the information is a year or two old, it’s stale. For some banks, the fact that borrowing occurred two years ago could become important. And, and the key thing about the case is that it also would be a going-forward disclosure, So, you know, this is obviously an important case, both for the information they want, which is for, you know, a couple of year period, and then going forward. In addition, if you have disclosure of this information, albeit, you know, a year or two old, that disclosure may discourage banks from using the discount window, and our economy and our society benefits when banks have liquidity, make loans. And we don't want it to discourage them from going to the discount window.

BOB GARFIELD: Bob, thank you so much.

ROBERT GIUFFRA: It’s been a pleasure talking to you.

BOB GARFIELD: Robert Giuffra is an attorney at Sullivan and Cromwell.