The Federal Reserve passed new restrictions to prevent conflicts of interest with the boards of directors and its 12 regional banks on Wednesday. The new rules were passed in response to such conflicts as the one involving Stephen Friedman, the former chairman of Goldman Sachs Group Inc. Friedman received a waiver to proceed as chairman of the board of directors at the New York Federal Reserve Bank despite Goldman Sachs becoming a bank holding company, regulated by the very organization he served on.
Friedman resigned from his post at the Fed after the Wall Street Journal questioned how is large holdings of Goldman Stock could influence the board’s regulatory action on the bank. Friedman claimed no foul in his resignation letter but it seemed action needed to be taken nonetheless. Nine-member boards hold reign over the 12 Fed regional banks with three board members elected by the banks in the Federal Reserve system in that district.
The remaining six members are chosen to represent the public and may not be affiliated with the bank. Under the new rules; however, any board director holding one of these Reserve positions can not have any tied to a financial institution beneath the central bank’s jurisdiction or they must resign from their position with the Fed within 60 days. The Fed is currently under fire from Congress who believes the Fed failed to sufficiently regulate banks and protect consumers prior to the crash. With this in mind the House Financial Services Committee, with the support of over 300 member of Congress, has adopted a proposal providing the Government Accountability Office with the jurisdiction to audit the Federal Reserve's credit facilities, balance sheet and securities.
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