While they haven't said that Fed decisions are unreviewable as a matter of law, courts have steered clear of reviewing both monetary policy decisions and bailouts very substantively. Augustus Hand concluded that he couldn't guess at what might be wrong with a legally constituted bank making loans to other banks and setting interest rates for those loans in Raichle v. Federal Reserve Bank, 34 F.2d 910 (2d Cir. 1929). And after the Franklin National Bank failed, and was bailed out by the Fed, the Second Circuit concluded that
Absent clear evidence of grossly arbitrary or capricious action on the part of [the Fed or the Treasury Department] ... it is not for the courts to say whether or not the actions taken were justified in the public interest, particularly where it vitally concerned the operation and stability of the nation's banking system.
Huntington Towers, Ltd. v. Franklin National Bank, 559 F.2d 863, 868 (2d Cir. 1978).
Authority that old always makes me nervous though, so there may be a more recent case out there that takes a different perspective. After the jump, a not very on point reference to the Fed's already extant conservatorship powers - the Fed can order banks into receivership (not insurance companies, though), but Congress gave the administration responsibilities to the FDIC. And if you think that Treasury might be good at running an insurance company, here's a paper on what has happened when it takes on broad new responsibilities.
A tiny bit more on Fed receivership practice: the Federal Reserve Act section 11 envisions the Fed calling for a receivership - but that's for federal insured banks:
The Board may appoint the Federal Deposit Insurance Corporation as conservator or receiver for a State member bank under section 11(c)(9) of the Federal Deposit Insurance Act.
TrackBack URL for this entry:
Links to weblogs that reference Judicial Review of the AIG Buyout: