WASHINGTON (Reuters) - U.S. Treasury Secretary Timothy Geithner said on Friday it was time to review how regional Federal Reserve banks are governed to ensure the public feels confident no conflicts of interest are at play.
Geithner was asked during a Reuters Television interview about the resignation on Thursday of Stephen Friedman, a member of Goldman Sachs Group Inc's Board of Directors and a former chief at the firm, from his post as chairman of the New York Federal Reserve Bank's board. The resignation came after questions were raised about Friedman's purchases of Goldman Sachs stock.
In the interview, Geithner, who was president of the New York Fed until his approval for the Treasury post in January, called Friedman "an enormously dedicated, talented leader of the financial community." Still, Geithner said he and Fed Chairman Ben Bernanke felt it was time to take a look at how the central bank handles potential conflicts of interest.
Friedman, who had led the New York Fed's board since January 2008, bought shares in Goldman in December and again this past January. During that period, the U.S. Treasury and the Fed were drafting plans to bolster the capital held by the nation's big banks.
In his resignation letter, Friedman said he had complied with rules governing such purchases, but did not want to become a distraction while the Fed was fighting a recession. He repeated on Friday that he did not break any rules.
"I followed the rules as I always have," Friedman said during the Goldman annual shareholder meeting.
The U.S. central bank is comprised of a seven-member Board of Governors in Washington and 12 regional Fed banks.
Some regional directors are appointed by the Washington board and are not allowed to hold shares in bank holding companies, a restriction that applied to Friedman.
Goldman Sachs became a bank holding company in September amid the turmoil in credit markets that wiped out the U.S. investment banking model.
Friedman obtained a waiver of the bank stock ownership rules, which the Wall Street Journal reported was granted just before he bought stock in January. The waiver allowed him to hold the shares until the end of this year and Friedman said last week he would resign by then.
Geithner said the Fed's structure, which dates to its creation in 1913, helps bring diverse interests to bear on the making of monetary policy by involving people from the business and civil community in governing regional Fed boards.
"That's a very valuable model for the country, it has served the country enormously well," Geithner said. "But we're taking a fresh look at all aspects of our financial system now and we're going to take a fresh look at the role of the Fed in the system generally. That's a useful thing for us to do."
Some lawmakers have expressed an interest in examining the structure of the Fed system and a non-binding resolution that cleared Congress on April 29 opened the door to a possible examination.
Geithner said both the Treasury and Fed were going to "take a fresh look at the role of the Fed in the system generally," but he did not specify if that meant examining the 12 regional bank structure, which he defended.
"We also want to make sure we're preserving what Congress initially created in the Fed, which is to try to bring a range of different perspectives to bear on the important monetary policy decisions the Federal Reserve makes," he said.
Geithner made clear, however, that conflict of interest issues would be under discussion.
"It's very important that people have confidence that the judgments people in public positions make are not colored by perceptions about concerns about conflict of interest," he said. "So we'll take a fresh look at this. I think it's important we do that."
(Additional reporting by David Lawder and Karey Wutkowski in Washington and Joseph A Giannone in New York)
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