Kohn had Board backing for NY Fed waiver: official

JEKYLL ISLAND, Ga (Reuters) - A waiver granted by Federal Reserve Vice Chairman Donald Kohn that allowed the chairman of the New York Fed's board of governors to stay in his job had the full backing of the Fed's Board of governors, including Chairman Ben Bernanke, a Fed official said on Monday.

The controversial waiver allowed Stephen Friedman to stay in his job as chairman of the board of governors of the New York Federal Reserve despite owning shares in Goldman Sachs (GS.N) ,which the Fed began regulating in September.

Friedman, a retired chairman of Goldman Sachs, resigned last week after it was reported in The Wall Street Journal that he had bought more Goldman shares.

The Wall Street Journal called in an editorial on Monday for Kohn's resignation, and said he had shown a tin political ear by allowing Friedman to stay at the New York Fed.

Goldman converted into a bank holding company last September in order to secure access to Federal Reserve lending facilities.

The U.S. central bank is comprised of a seven-member Board of Governors in Washington, and 12 regional Fed banks.

The Board of Governors selects some of the directors on the boards of each regional Fed, including Friedman, and these directors are banned from owning shares in Fed-regulated banks.

The Fed official said that it was unfair to single out Kohn, who had fully consulted with his board colleagues, including Bernanke, before the waiver was granted on January 21. It fell to Kohn because he heads up the committee on Federal Reserve bank affairs.

In addition, the Board of Governors in January voted to confirm Friedman as New York Fed chairman, the official said.

Friedman and the New York Fed have both said that he had done nothing wrong.

The Friedman waiver was sought shortly after Goldman became a bank holding company. While the Fed was deciding whether or not to grant it, he bought 37,300 Goldman shares on December 17. On January 22, the day after the waiver was granted, he bought 15,300 more Goldman shares.

The Fed is under intense scrutiny after rescuing investment bank Bear Stearns and insurer American International Group last year, and for pumping hundreds of billions of dollars into credit markets to prevent them freezing amid a global panic over massive losses on risky U.S. housing bets.

Goldman won its bank-holding status in September after the failure of its rival Lehman Brothers, allowing it more straightforward access to the government financial market safety net.

(Editing by Leslie Adler)