Fed seeks to halt conflicts of interest at its 12 banks

The Federal Reserve is crafting a policy aimed at preventing conflicts of interest when some directors of its 12 regional banks own shares of bank holding companies supervised by the Fed.

Such investments have come under scrutiny this week after revelations that a former chairman of the Federal Reserve Bank of New York, Stephen Friedman, as well as a Minneapolis Fed deputy chairman, owned stock in Fed-regulated bank holding companies. Friedman, a Goldman Sachs Group Inc. director, resigned this week from the New York Fed to avoid the appearance of a conflict.

The Fed’s “board is developing a policy to address these types of situations in the future,” Fed spokesman David Skidmore said in an e-mail Friday. He didn’t elaborate.

Lawmakers have called for greater scrutiny of the regional Fed banks, including the appointment of their presidents.

The regional banks make up the Federal Reserve system along with the Board of Governors. Although they have a voice in setting central bank policy, the banks operate as public-private entities with directors who aren’t confirmed by legislators.

Friedman, who runs investment firm Stone Point Capital in New York, was chosen in 2008 to be one of three New York Fed directors representing the public. He was granted a waiver to keep serving after Goldman became a bank holding company in September. On Friday he said he would resign because questions about his Goldman Sachs connections were a “distraction.”