The Federal Reserve lost a lawsuit yesterday, and the decision could hold implications for the future of emergency borrowing and programs like the Talf. A judge for the U.S. District Court in Manhattan ordered the Fed to turn over information that journalists had requested about the identities of banks borrowing from the Fed and the collateral they’d posted to do so. When Bloomberg LP filed the suit last November at the height of the credit crunch, a win seemed nearly impossible. But now it’s a reality. Will the threat of exposure put bankers off the Talf? Will it make them less likely to borrow form the discount window when they’re in trouble? The answer seems to depend on what happens next.

A former Fed lawyer here in Washington told BankThink in November that not only is it generally very difficult to win a case against the U.S. government and all its mighty resources, it would be especially hard for Bloomberg to prove that the names of borrowers from the Fed should not be kept confidential. Gil Schwartz, now a partner at Schwartz and Ballen LLP, said there was also a legitimate question about whether, as Bloomber’s lawyers argued, the Federal Reserve System could even be considered public. The Federal Reserve banks are private, Schwartz pointed out then, and Bloomberg’s argument that the information should be disclosed because it dealt with loans of public funds was invalid.

The judge’s decision doesn’t actually address the public/private issue; instead it concludes that the information Bloomberg requested could be included in Board records and should therefore be open to the public. The failure of the judge to find that some of the information should nevertheless remain confidential is more significant.

“It can be a troubling decision and can make a lot of mischief if it’s upheld,” Schwartz said. “What it does is to subject the participants’ confidential information to public scrutiny and that’s another thing you’ll have to take into account before you actually go to the fed and borrow under these circumstances.”

The effects might not take hold immediately. If the U.S. Court of Appeals for the Second Circuit grants a stay on the judge’s order to release the documents to Bloomberg within five days, then Fed borrowers could expect to have another year before they would need to start worrying about an appeal judgment. But if the Second Circuit Court were to uphold the District Court’s judgment, a powerful precedent would be established.

In the future, journalists and others seeking information would at least know where to go to fight for it. “Everybody would run to New York in terms filing these kinds of claims,” Schwartz said.