The Federal Reserve on Wednesday tightened standards for certain directors at regional Fed banks in an attempt to distance the regional Fed banks from private banking companies.
According to the revised policy, Class B and C directors affiliated with a company that becomes a "financial affiliation company" during the director's term must resign from the company or from the Fed bank's board within 60 days. This period commences when the director becomes aware of the affiliation or the board informs the Fed of the company's change in character.
The director would also be "required to recuse himself or herself from all duties related to service as a reserve bank director until the affiliation is severed," the Fed said.
The chairman of the Federal Reserve Bank of New York, Stephen Friedman, stepped down from his post this year amid reports that, while he was the New York Fed's chairman, he was buying stock in Goldman Sachs, where he was a director. Goldman had become a Fed-regulated banking company a few weeks before his purchases.
The revised policy says a Class C director who holds stock in a company that becomes a financial stock issuer during the director's term must divest himself of the stock or resign from the reserve bank's board within 60 days.
Class A directors represent banks and are chosen by local bankers in each Fed district. Class B directors represent the broader public and are chosen by banks in each district.
Class C directors represent the public and are chosen by the Federal Reserve Board in Washington.