UPDATE 3-NY Fed names Potter as head of markets group

* Simon Potter to replace Brian Sack in the job

* To conduct U.S. central bank's open market policies

By Jonathan Spicer

June 21 (Reuters) - The Federal Reserve Bank of New York named Simon Potter, an internal director of economic research, as the new head of its division that conducts monetary policy in the marketplace for the U.S. central bank.

Potter, 51, starts as head of the New York Fed's markets group on June 30, replacing Brian Sack, 41, whose resignation was announced in April.

The markets group deals directly with Wall Street and foreign central banks, carrying out Fed actions in the open market. Potter will oversee the extension of so-called Operation Twist, unveiled on Wednesday, in which the Fed sells short-term bonds and replaces them with longer-term ones in an effort to lower borrowing costs.

Potter, who is now the co-head of research and statistics at the New York Fed, will also manage the Fed's System Open Market Account (SOMA).

Sack, who was seen as a rising star within the central bank, had been head of markets since June 2009. He navigated many of the Fed's emergency measures to stabilize the banking system and help pull the U.S. economy out of recession during the financial crisis in 2008-2009, including two controversial "quantitative easing" programs.

Dubbed QE1 and QE2, the programs included the Fed buying U.S. Treasury debt and mortgage-backed securities.

With the U.S. economic recovery still flailing, the jobless rate high at 8.2 percent, and Europe's sovereign debt crisis simmering, the Fed may unleash even more unconventional policy action, including QE3. The new $267-billion Operation Twist is set to run through the end of the year.

In the years to come, the New York Fed's markets group will have the tricky job of unwinding the more than $2 trillion in securities the central bank has directed it to purchase since late 2008.

"The job in the next few years will be cleaning up the mess, it's not as exciting and creative as it was before," said Ernest Patrikis, a former general counsel and first vice president at the New York Fed.

"You need a steady hand who knows the system and the people... To me, there's much to be said for internal promotions, and not bringing in outsiders," added Patrikis, who is now a partner at White & Case in New York.

Potter, a 14-year employee of the New York Fed, helped design the 2009 U.S. bank "stress tests" and sits on an international group that supported the Basel Committee's efforts to strengthen bank capital standards, the Fed bank said.

He also regularly gives briefings to the central bank's Federal Open Market Committee (FOMC), which sets monetary policy. Before joining the New York Fed, Potter was assistant professor of economics at the University of California, Los Angeles.

"Simon is a trusted colleague with deep expertise in macroeconomics, financial stability and financial markets, and a reputation for candor and objectivity," New York Fed President William Dudley said in a statement.