N.Y. Fed chief resigns 'immediately'

NEW YORK, May 7 (UPI) -- The chairman of the Federal Reserve Bank of New York, Stephen Friedman, resigned Thursday, rejecting suggestions his service on the board is "improper."

Friedman simultaneously sat on the board of Goldman Sachs Group Inc. while serving as chairman of the New York Fed. In his resignation letter to board President William Dudley, Friedman noted that he had agreed to remain on the board last fall after Goldman Sachs became a bank holding company.

Friedman held a substantial stake in Goldman Sachs while the Fed developed a strategy to help Wall Street banks survive the financial crisis, The New York Times reported Thursday. The Fed issued a policy waiver requested by the New York Fed, but while the Fed considered the request, Friedman acquired 37,300 Goldman shares -- which have gained $1.7 million in value, the Times said.

New York Fed General Counsel Thomas C. Baxter issued a statement Thursday saying "it is my view that these purchases did not violate any Federal Reserve statute, rule or policy."

However, The Wall Street Journal reported this week that Friedman's role at Goldman constituted a violation of Fed policy.

"Today, although I have been I compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being characterized as improper," Friedman wrote in his letter to Dudley. "The Federal Reserve System has important work to do and does not need this distraction."

The New York Fed said Denis M. Hughes, deputy board chairman, will serve as interim chairman, the Times reported.