In a significant victory for news media, a federal appeals court said the Federal Reserve must disclose records on emergency lending programs to banks bailed out by the government in the financial crisis.

The Second Circuit Court of Appeals on Friday ordered the Fed to release details of programs it adopted starting in late 2007 to shore up the financial system and forestall a complete meltdown of global financial markets.

Bloomberg LP, the parent of Bloomberg News, and News Corp's Fox News Network sought details of the central bank's actions under the federal Freedom of Information Act, or FOIA, which requires government agencies to make documents public.

The Fed argued against disclosure, citing an exemption that it said lets federal agencies keep secret various trade secrets and commercial or financial information.

It also said allowing disclosure of participants in the programs and the collateral they posted could cause competitive and reputational harm, perhaps triggering bank runs, and impede the central bank's ability to effectively manage the current, and any future, financial crisis.

Writing for a unanimous three-judge appeals court panel, Chief Judge Dennis Jacobs said, however, that to give the Fed power to deny disclosure because it thinks it best to do so would undermine the basic policy that disclosure, not secrecy, is the dominant objective of.

If the Board believes such an exemption would better serve the national interest, he added, it should ask Congress to amend the statute.

Bloomberg had won its case at the district court level, while Fox News had lost its case. The Second Circuit threw out the ruling against Fox, and ordered a lower court judge to decide what materials must be disclosed.

Sen. Byron Dorgan, a North Dakota Democrat, said the rulings will help shed light on the Fed, which he called the least transparent institution in government, as lawmakers debate how far to overhaul the financial regulatory system.

We don't know how much was shoveled out of the back door of the Federal Reserve Board and to whom, Dorgan, chairman of the Democratic Policy Committee, said in a telephone interview. Finally, we will be able to get some sense of who got the money, some of the biggest institutions in the country, how much and how they used it.

FED DISAPPOINTED, MEDIA PLEASED

Fed spokeswoman Michelle Smith said the central bank is reviewing the decision and weighing options for reconsideration or appeal. An appeal could go to the U.S. Supreme Court.

The Clearing House Association, a group of major U.S. and European banks, said it was disappointed with the decision. It said the court did not reach the fundamental issue of whether disclosure would have competitively harmed banks, general counsel Paul Saltzman said in a statement.

I don't think it will be do or die for the Fed's ability to put emergency programs into place, said Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc in Sarasota, Florida, and a former Federal Reserve Bank of Atlanta head of research. It will force the Fed to be more forthright and transparent to the public about the terms and conditions.

Bloomberg sued to obtain records of Fed actions to shore up the financial system starting in late 2007, including the March 2008 sale of Bear Stearns Cos to JPMorgan Chase & Co.

It sought information about loans conducted at the Fed's discount window, the primary dealer credit facility, the term securities lending facility and the term auction facility.

The discount window is the program through which the 12 Federal Reserve Banks make short-term loans.

We're completely thrilled about the decision, said Amanda Bennett, executive editor of projects and investigations at Bloomberg News, in an interview.

The transparency of Federal Reserve Board decision making is something the American public has a right to, she said. The argument that it could harm the market is largely theoretical. Markets get in trouble not when people know too much about what is going on, but know too little.

In a separate statement, Kevin Magee, an executive vice president of Fox Business Network, said, We are pleased that this information is finally, and rightfully, going to be made available to the American public.

Reuters is part of a group of media organizations that submitted a brief to the appeals court supporting Bloomberg.

PLAUSIBLE DEFENSE

The media's principal argument included that the public interest in disclosure trumped any potential risk of harm to borrowers, and that the identity of those borrowers was itself not confidential.

Jacobs wrote that the Fed and Clearing House set forth plausible, and forcefully made arguments that disclosure would harm the banks that borrowed (by disclosing their prior distress) and the banking system as a whole (because banks under stress may hesitate to seek relief or rescue).

But he said the disclosure sought would not cause Federal Reserve banks the kind of harm contemplated by the 'privileged or confidential' requirement of an exemption from FOIA.

It's important information for the markets to know, said Kenneth Thomas, a Miami banking consultant who said he has made several hundred FOIA requests to the Fed alone. When we know what the Fed did in this case, market participants will have a better idea what the Fed will and won't do the next time.

Eisenbeis, the former Atlanta Fed official, said banks might be more resistant to participate in some programs if they know their participation is going to be made public.

But he added: If your firm is in trouble, and going to the Fed is your last opportunity to get out, you'll do it.

Bennett said Bloomberg called the Fed after Friday's decision came down to again request the material sought. There is still a great deal to be learned, she said.

Clearing House members include the ABN Amro Bank NV unit of Royal Bank of Scotland Group Plc, Bank of America Corp, Bank of New York Mellon Corp, Citigroup Inc, Deutsche Bank AG, HSBC Holdings Plc, JPMorgan, UBS AG, US Bancorp and Wells Fargo & Co.

The cases are Bloomberg LP v. Board of Governors of the Federal Reserve System et al and Fox News Network LLC v. Board of Governors of the Federal Reserve System, U.S. Court of Appeals for the Second Circuit, Nos. 09-4083, 09-4097 and 09-3795.

(Reporting by Grant McCool and Jonathan Stempel; Additional reporting by Tim Ahmann in Washington, D.C.; Editing by Andre Grenon, Steve Orlofsky and Matthew Lewis)

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