Morgan Stanley CEO Gorman elected to N.Y. Fed board

NEW YORK (Reuters) - The Federal Reserve's New York branch on Monday named James Gorman, the chief executive of Wall Street bank Morgan Stanley (NYSE: MS), to its board of directors for a three-year term beginning in January.

The appointment, however, may raise questions after the New York Fed, the central bank's eyes and ears on Wall Street, was criticized in recent years for what some see as a too-cozy relationship with the big banks it supervises.

Gorman, 57, who has run Morgan Stanley since early 2010, will become one of three so-called Class A members of the New York Fed's board who represent banks in the district and offer advice on the economy, policy, and markets.

By law one director must represent a bank with capital and surplus of more than $1 billion.

Unlike the six Class B and C directors who represent corporate, industrial and public interests, Gorman will have no say on financial supervision or the selection of a New York Fed president if William Dudley, the current head, were to leave.

The New York Fed was slammed for failing to head off JPMorgan's (NYSE: JPM) massive "London Whale" trading loss in 2012. Last year a former bank examiner raised political scrutiny with accusations and a lawsuit, later dismissed, that claimed the New York Fed went soft on Goldman Sachs and other banks.

In 2009, Stephen Friedman, a retired Goldman chairman, resigned as chairman of the New York Fed amid questions over his purchase of stock in the bank just as the Fed was mulling a Wall Street bailout. Dudley, who has defended his bank regulators against the recent criticism, is a former Goldman economist.

Asked about perceptions of conflict, a New York Fed spokeswoman cited a law that Class A directors must represent local banks and have served as officers or directors.

Morgan Stanley is one of 22 U.S. primary dealers, the top Wall Street firms that do business directly with the Fed.

The Australian-born Gorman will replace Richard Carrión, CEO of Banco Popular de Puerto Rico, on Jan. 1, 2016. The other two Class A directors are Paul Mello, CEO of Solvay Bank, and Gerald Lipkin, head of Valley National Bank.

(This version of the story was refiled to remove extraneous text before paragraph 6.)

(Reporting by Richard Leong and Jonathan Spicer; Editing by Paul Simao)

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