It was Fed and Treasury who made Kenneth Lewis conceal Merrill’s problems

Testifying under oath to the New York's attorney general Andrew Cuomo Bank of America’s Kenneth Lewis said that he was pressed by the U.S. Federal Reserve Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson not to disclose the losses of Merrill Lynch and the plans to acquire the failed institution, reports the Wall Street Journal.

The journal published the transcripts of the testimony held in February at the Office of the NY Attorney General. Kenneth Lewis said that he believed Paulson and Bernanke were instructing him to keep silent about deepening financial difficulties at Merrill. He testified that the government wanted the information to remain undisclosed while the two sides were discussing the state bailout to help BofA absorb Merrill.

According to the paper report a representative of Cuomo asked Lewis about his failure to advise of Merrill’s losses that eventually came to stand for $15.84 billion. Lewis answered that Bernanke and Paulson wanted the deal to be completed otherwise it would "impose a big risk to the financial system" of the United States as a whole.

Meantime, a person in the government familiar with the conversation of Bernanke and Lewis told the paper there was no advice on the part of the Fed chairman about the disclosure of the deal. Instead BofA’s chief was recommended to consult his own counsel.

Besides, the former Treasury Secretary's spokeswoman said that Paulson reiterated to Lewis that "the U.S. government was committed to ensuring that no systemically important financial institution would fail”.

A BofA spokesman told the paper that the bank "had no legal obligation to disclose ongoing negotiations with the government and disclosure of ongoing negotiations likely would have severely disrupted the global financial markets and damaged the bank."