The Wall Street Journal reports that the Federal Reserve Bank of New York is facing renewed scrutiny over investments held by a senior official during the 2008 financial crisis—and over Treasury Secretary Geithner's waiver that allowed him to do so.
According to a recently released congressional audit report, then-New York Fed President Geithner issued a waiver that allowed William Dudley, who was executive vice president of the regional Fed bank's markets group, to work on the controversial bailout of American International Group despite the fact that he was an AIG shareholder.
The report also said that the Fed has yet to update its conflict-of-interest policies to "more fully reflect" potential conflicts that could arise in financial crises.
Without a waiver, "employees were prohibited from working on an emergency program while holding investments that would be affected by their participation in matters concerning those programs," the report said, citing staff from the New York Fed.
Dudley's waiver was granted Sept. 19, 2008, three days after the Federal Reserve Board authorized the New York Fed to help AIG. Other employees were also granted waivers during the crisis, although some were required to sell their holdings, according to the report.
The waiver allowed Dudley, a former Goldman economist who became New York Fed president in January 2009, to also work on issues involving General Electric Co., another company that received U.S. assistance, even though he also held shares in that company.
The Treasury Department is referring calls on this issue to the New York Fed.
Bloomberg reports that, according to an administration official, Dudley—who is now president of the New York Fed—is scheduled to meet with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Geithner to discuss the implications if Congress fails to raise the debt limit in time to avoid a default.
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