Bank of America reports threat by Fed

Bank of America’s chief executive Thursday for the first time said publicly that officials in the Bush administration and the Federal Reserve threatened to remove top executives of the bank unless the financial giant merged with the troubled Merrill Lynch for the good of the foundering economy.

Bank of America’s Kenneth Lewis told the House Oversight and Government Reform Committee that the threat was not the deciding factor in the bank’s acquisition of the nation’s largest investment banking firm. But he added: “What gave me concern was that they would make that threat to a bank in good standing.”

The testimony came as the No. 2 Republican in the House said President Obama’s handling of the auto company bailouts was comparable to the strong-arm tactics of Russian Prime Minister Vladimir Putin.

Until the Bank of America revelations, Republicans had been battering Mr. Obama and Democrats in Congress for using heavy-handed government intervention to deal with private-sector woes. Now lawmakers from both parties are accusing each other of pushing too hard from Washington.

At the committee hearing Thursday, Republicans and Democrats pressed the banker over his denial that the government’s threat forced him to proceed with the acquisition, and accused the Fed of orchestrating a “shotgun wedding” to force the deal.

The panel is investigating claims that top government officials, including then-Treasury Secretary Henry M. Paulson Jr. and Fed Chairman Ben S. Bernanke, pressured Mr. Lewis, whose bank had received $25 billion in federal bailout funds, and urged him to keep quiet about Merrill Lynch’s financial problems. Mr. Lewis denied any wrongdoing.

“A number of pieces of evidence have arisen that make us believe that government officials felt necessary to use the power, influence and in fact potentially threats in order to consummate this deal,” said the committee’s top Republican, Rep. Darrell Issa of California.

“Nowhere in the [bank bailout] legislation did it suggest that Hank Paulson, Ben Bernanke or anyone else operating on behalf of the United States government was given the power to force shotgun weddings.”

Fed spokeswoman Susan Stawick said the agency would have no comment regarding the accusations.

Mr. Paulson has said in interviews since leaving office that he used strong pressure to clinch mergers among several large banks to prevent the chaotic failure of a major institution during last fall’s financial crisis. He said he learned from the market catastrophe that occurred after Lehman Brothers’ mostly uncontrolled fall into bankruptcy in September that regulators must act to prevent a worsening of the financial collapse.

The former Treasury chief has conceded that he may not have had explicit legal authority to do everything he did, but he felt compelled to act because of the emergency.

Mr. Bernanke also has said he acted out of necessity in arranging mergers last fall, and has denied any wrongdoing. The Fed, as Bank of America’s principal regulator, has considerable power over such banks under the law — to the point of being able to order them to close or merge if they are on the verge of failure.

While Bank of America’s acquisition of Merrill Lunch occurred during the Bush administration’s watch, Republicans have accused the Obama administration for taking a heavy-handed approach in trying to fix the economy.

The administration actively pushed for troubled Detroit automakers General Motors Corp. and Chrysler LLC to declare bankruptcy in exchange for federal aid.

House Republican Whip Eric Cantor, Virginia Republican, blasted the White House’s handling of the troubled domestic auto industry, accusing the administration of undemocratically taking credit holders’ rights and shifting them to Democratic allies.

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