Regional Feds urged to avoid conflicts of interest

Reuters

Federal Reserve

"While these relationships may not give rise to actual conflicts of interest, they can create the appearance of a conflict," the Government Accountability Office, a congressional watchdog agency, said.

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Many institutions linked to the directors of regional Fed banks took advantage of the central bank's emergency lending programs, underscoring the potential for conflicts, GAO said.

Congress mandated the report in the Dodd-Frank overhaul of financial rules and supervision enacted after the financial crisis of 2007-2009.

Although the boards of Fed banks are supposed to have directors representing a range of groups, including labor and consumers, their directors can all have ties to the financial industry, the agency said.

GAO also urged Fed banks to clearly document directors' roles in bank supervision and regulation. Similarly, the agency recommended that Fed banks create a process for letting directors step aside from dealing with matters where they might face a conflict of interest.

(Reporting by Mark Felsenthal; Editing by James Dalgleish)