Friedman was the subject of a recent Wall Street Journal story that raised questions about his ties to Goldman Sachs Group Inc.
"Although I've have been in compliance with the rules, my public service ... on the Reserve Bank Board is being mischaracterized as improper," Friedman said in his resignation letter. "The Federal Reserve System has important work to do and
does not need this distraction.
Goldman Sachs late last year received quick Fed approval to become a bank holding company. During that time, Friedman sat on Goldman Sachs' board and had a large holding in the company, a violation of Fed policy, the Journal reported.
But the New York Fed's executive vice president and general counsel Thomas Baxter on Thursday said Friedman's purchases of Goldman Sachs stock in December 2008 and January 2009 "did not violate any Federal Reserve statute, rule or policy."
Friedman, a retired Goldman Sachs chairman, said he had received a waiver to remain on the company's board after Goldman Sachs became a bank holding company.
Denis Hughes, deputy chair of the New York Fed's board, will step in and "exercise the powers and the duties" of board chairman, the regional bank said.