Fed Officials Had `Misgivings' About Friedman's Goldman Stock, Towns Says

Senior Federal Reserve officials had “serious misgivings” about allowing the former chairman of the Federal Reserve Bank of New York’s board to serve while owning shares of Goldman Sachs Group Inc., a House chairman said.

The Fed officials argued against allowing Stephen Friedman to stay on as chairman while simultaneously investing in Goldman Sachs before the central bank waived its conflict of interest policy in January 2009, House Oversight and Government Reform Committee Chairman Edolphus Towns said in a statement today.

“Senior officials had misgivings about granting the waiver but were overruled,” Towns, a New York Democrat, and Representative Stephen Lynch, a Massachusetts Democrat, said in the statement.

The Oversight Committee will schedule a hearing “to learn more from Mr. Friedman and senior Fed officials about how he was permitted to make windfall profits by trading stock in a company he had a role in regulating,” the lawmakers said.

After Goldman Sachs opted to become a Fed-supervised bank in September 2008, the Fed approved a waiver for Friedman to remain chairman of the New York Fed’s board.

Friedman bought additional stock in Goldman Sachs after receiving the waiver, drawing criticism from members of Congress including Towns and Senator Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee. Friedman resigned the Fed post in May 2009, citing the distraction caused by the controversy.

The Fed changed its policies in November to bar non-bankers serving as directors of a regional Fed bank from being board members or employees of a company that owns or is part of a bank, thrift or credit union.

To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net.

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