The Federal Reserve is tightening its policies on director eligibility more than six months after then New York Fed Chairman Stephen Friedman resigned after questions were raised about his stockholdings in Goldman Sachs once it came under the Fed’s direct supervision.
“The revisions address situations where, as a result of a company changing character, affiliations and stockholdings that were previously permissible may become impermissible for Class B and Class C directors,” the Fed said in a released statement today.
Friedman resigned on May 7 saying his continuing service on the New York Fed’s board was motivated by public service but had been “mischaracterized as improper.”
Friedman had obtained a waiver from the Board of Governors of the Federal Reserve to stay on as a New York Fed board member after Goldman Sachs converted to bank holding company status last year.
Six of nine directors on the board of any of the Reserve Banks cannot be officers, directors or employees of any bank. In addition, three of those directors cannot own stock in any bank.
According to the new policy, any Federal Reserve bank director among those six must resign from any prohibited affiliation or resign from the bank within 60 days of becoming aware of the “prohibited nature” of the company or when the Board informs the Reserve Bank of the company’s status as a “financial stock issuer.”
A director who owns stock in a company under similar circumstances that becomes a “financial stock issuer” must sell stock or resign from the board within 60 days.