US Congress angry with Fed and Treasury, Lewis declines pressure on BofA

The Treasury and Federal Reserve were strongly criticized on Thursday by lawmakers who were questioning Kenneth Lewis over the Merrill Lynch acquisition by the Bank of America. US Congress expressed its resentment against the methods Fed and Treasury used to press BofA purchase the ailing bank which among other things included threat to dismiss the board. Lewis was also accused of concealing the information about Merrill’s rising losses from shareholders.

"The Treasury Department had provided a $20 billion dowry for a shotgun wedding," said House Oversight and Government Reform Committee Chairman Adolphus Towns, a Democrat. "But the question may be, 'Who was holding the shotgun?'"

Republicans on the panel are sure that Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson effectively put "a gun to the head" of Lewis to close the deal quickly.

"This transaction took place in a climate of fear and intimidation by government officials," said Republican Jim Jordan of Ohio.

According to what Lewis said to his board, the Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson effectively put "a gun to the head" of Lewis to close the deal quickly. In this regard Lewis himself refused to characterize the actions of the regulators as the threat.

"I would say they strongly advised and they spoke in strong terms but I thought it was with good intentions," he said. "It was in the context of them thinking it was in the best interests of Bank of America and the financial system."

"If that isn't a threat, I don't know what is," Democrat Elijah Cummings agreed.

Towns said the deal, pushed behind closed doors through "coded messages and private e-mails", was evidence of a deeper malaise in financial supervision.

"Basically, the regulators and the financial institutions seemed to be making up the rules as they went along," Towns said, adding that the incident should help shape financial regulatory reforms that Congress is exploring.

According to the hearing witnesses Lewis generally kept his answers brief and even smiled and laughed at times during a three-hour of grilling.

Towns said Bernanke and Paulson would be asked to testify at a later date before the committee.