The waiver allowed Mr. Dudley, who became president of the New York Fed in January 2009, to also work on issues involving General Electric Co., another company that received assistance, even though he also held shares in that company.
All the shares have now been sold, the New York Fed said Thursday. Mr. Dudley, "volunteered to dispose of the shares at predetermined dates, agreed to by the New York Fed's ethics office," the bank said in a statement.
Mr. Geithner is now the U.S. Treasury Secretary.
The Government Accountability Office report said the New York Fed's chief ethics officer recommended the waiver in part because selling the stock could have put Mr. Dudley in violation of securities laws. The ethics officer also cited the critical role that Mr. Dudley played at the Fed and a determination that his holdings didn't exceed a $15,000 level under federal ethics regulations.
The Fed is unlikely to face fresh criticism for how it conducted itself during the financial crisis. To some observers, the conflicts identified in the report reflect the unexpected position the Fed found itself in during the financial crisis, as central bankers found themselves forced to move quickly to rescue a wide range of private institutions.
"The world was changing so quickly and so dramatically they were not able to catch up" and adjust their internal conflict policies, said Tim Duy, an economist with the University of Oregon. Mr. Duy added "the real failures" at the Fed came before the crisis, when they failed to adequately regulate banks and make sense of what was happening in housing markets.
Still, the Fed has yet to update its conflict of interest policies to "more fully reflect" potential conflicts that could arise in financial crises, the report found. AIG wasn't regulated by the Fed before the bailout, and as a result wasn't covered by existing restrictions on investment holdings.
The GAO said the Fed should consider altering its conflict-of-interest policies, including addressing conflicts related to nonbank institutions that participate in emergency programs.
Warren Gunnels, an aide to Sen. Bernie Sanders (I, Vt.), was more succinct. "If there are employees at the Fed that the Fed has granted access to operate emergency programs, they should not be allowed to potentially game the system," he said. Mr. Sanders had asked for the report, which was mandated by the Dodd-Frank financial overhaul law.
In a statement accompanying the report, Fed general counsel Scott Alvarez said the Fed would give the recommendation and others "serious attention" to the extent that the issues hadn't already been addressed.
Mr. Dudley's waiver was granted Sept. 19, 2008, three days after the Federal Reserve Board authorized the New York Fed to help AIG. Other employees were also granted waivers during the crisis, although some were required to sell their holdings, the report found.
Without a waiver, "employees were prohibited from working on an emergency program while holding investments that would be affected by their participation in matters concerning those programs," the report said, citing staff from the New York Fed.
The GAO report also found the Fed's regional banks relied on outside firms to manage many of the rescue programs, including the $30 billion of Bear Stearns & Co. mortgage-related assets. The biggest beneficiary appeared to be BlackRock, which was paid almost $211 million for a variety of services, including valuing assets and selling securities, according to the report. Morgan Stanley earned $108 million for managing a credit facility that shored up AIG Corp. Among law firms, Davis Polk & Wardwell earned more than $33 million, mostly for providing legal services for the AIG bailout.