Federal Reserve to be subpoenaed by Congress to account for Merrill acquisition

On Tuesday a House of Representatives committee stated that it would subpoena the Federal Reserve to make the central bank to provide documents related to its role in Bank of America’s takeover of Merrill Lynch in 2008. The statement comes several days before Kenneth Lewis will testify before the House Oversight Committee which is conducting an investigation into what Lewis knew about Merrill's financial condition and potential regulatory pressure to complete the deal.

In testimony prepared for the hearing Lewis told that he became aware of "significant, accelerating losses" at Merrill in the middle of December after the shareholders vote. He also said that he told Treasury and Fed officials he was considering declaring a "material adverse change" which would have allowed it to walk away from the acquisition, but the regulators asked the bank to delay any such action, added Lewis.

Meantime, Ben Bernanke denied previous statements of Lewis about pressure. A spokeswoman for former Treasury Secretary Henry Paulson has said Paulson told Lewis there was no need to terminate the deal.

Chairman Edolphus Towns was joined by the ranking Republican Darrell Issa in agreeing to serve the subpoena on the Federal Reserve.

According to the lawmakers the Fed will only allow committee staff to review documents at the Federal Reserve's Washington offices, which they did for several days.

"Following the staff review, we conclude that we will need copies of these documents," they wrote in a letter dated June 3 to Fed chairman Ben Bernanke.

Congress has been pressing the Federal Reserve to disclose more information about its lending programs. Meanwhile, the Fed spokesperson expressed concerns about such a public disclosure of the documents which contain information provided by the financial institutions on condition of confidentiality. But faced with subpoena the Fed will now hand over the documents, the spokeswoman said.

The documents include handwritten notes from a December 19 meeting between Bernanke, Bank of America chief executive Ken Lewis and others.

Lewis has said the government pressured him to pursue the deal and to withhold information about losses at Merrill from investors, but regulators have disputed this characterization.