There is no "Files" under "Libraries". Files and Libraries are both parts of the navigation tree for a given server, on the same hierarchy level.
Libraries can be hidden by making the physical directory non-readable and non-accessible on the OS level, and/or by making them metadata-bound and setting the permissions in metadata.
Folders in Files (file system directories) can not be hidden, only their content. Their names will always show up if a user has read permission for the parent directory.
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