By Michael S. Derby
NEW YORK--The New York Fed is on the verge of closing a
controversial chapter for the board that oversees the
institution.
On Tuesday, the New York Fed said that its Board of Directors
has nominated Gerald Lipkin, president and chief executive officer
of New Jersey's Valley National Bank, to fill a slot on its board
reserved for representatives from smaller banks. Mr. Lipkin has
been nominated to take over a position vacated by Richard Carrion,
of Banco Popular de Puerto Rico.
Mr. Carrion was elected earlier in the year to fill a
directorship reserved for large banks in the New York Fed's
district. That position opened at the end of last year after Jamie
Dimon, leader of JPMorgan Chase & Co., completed his term. Mr.
Lipkin's bank did not respond to a request for comment.
Mr. Carrion's elevation represented the beginning of the end of
a difficult period for the New York Fed. If Mr. Lipkin gets the
support of New York Fed member banks, the institution will no
longer count leaders of too-big-to-fail banks among its board
membership.
Over recent years, the presence mega-bank leaders on the New
York Fed board has proved highly controversial. Critics have
contended there's a huge conflict of interest for the board to have
bankers watching over the New York Fed, at the same time the
institution regulates those same financial firms. The events of the
financial crisis and the central bank's extensive bailouts and
interventions only heightened this anxiety.
During Mr. Dimon's contentious tenure coincided with his bank
facing a major trading loss that alarmed many observers. While Mr.
Dimon competed his appointed term, he was the subject of a fairly
substantial campaign from Fed critics to have him removed
early.
Other black eyes to the New York Fed board included Stephen
Friedman, a Goldman Sachs director and shareholder, who resigned in
2009 as board chairman amid questions about his financial holdings.
Lehman Brothers leader Richard Fuld was a director in 2008 when his
bank imploded, an event that accelerated the financial crisis to a
fever pitch.
Fed officials assert the controversy over who serves on the
board is misguided. Each of the 12 regional bank boards is
comprised of a mix of bankers, local business leaders and community
interests, based on law set by Congress. Fed officials say board
members provide valuable information on local economies, as well as
important advice on operational issues.
Critically, central bankers say board members are not privy to
any information about monetary policy issues. Legal changes have
removed bankers from perhaps the board's most important role,
choosing a new bank president. Meanwhile, bank supervision is
managed by the Federal Reserve in Washington, and not by the
regional Fed banks that actually house the regulators.
-Write to Michael S. Derby at michael.derby@dowjones.com