By Ray Goldbacher, USA TODAY
Stephen Friedman, chairman of the board of the Federal Reserve Bank of New York, resigned Thursday over questions about his ties to Goldman Sachs.
In a letter to Fed officials, Friedman said, "Today, although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper. The Federal Reserve System has important work to do and does not need this distraction."
Earlier this week, The Wall Street Journal raised questions about the influence of Goldman Sachs, on whose board Friedman sits, in shaping Washington's response to the financial crisis.
"The Federal Reserve Bank of New York shaped Washington's response to the financial crisis late last year, which buoyed Goldman Sachs Group Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after," the Journal story said.
"During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy."
The New York Fed's executive vice president and general counsel, Thomas Baxter, says Friedman's purchases of Goldman Sachs stock in December 2008 and January 2009 "did not violate any Federal Reserve statute, rule or policy."
The New York Fed chair is influential, and the president of the New York Fed is a permanent member of the Federal Reserve's policymaking Open Market Committee. It meets eight times a year to decide the direction of interest rates and money supply. Goldman Sachs alum William Dudley holds the job.
The announcement came from the New York Fed on Thursday evening, shortly after the Federal Reserve in Washington released results of stress tests on 19 of the largest bank holding companies.
Goldman was among the 19, but the report says it does not need to raise its capital cushion.
With Friedman's departure, the New York Federal Reserve Bank says Denis Hughes, deputy chairman, "will exercise the powers and duties of the chair."
Contributing: The Associated Press
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