TOPICS > Economy

Fed Chief Denies Wrongdoing in BofA Deal

BY Admin  June 25, 2009 at 12:05 PM EST

Fed Chief Ben Bernanke; File photo/AP

In his testimony, Bernanke said he did not unduly pressure North Carolina-based Bank of America to enter the difficult merger.

“I did not tell Bank of America’s management that the Federal Reserve would take action against the board or management” if they decided to try and stop the deal, Bernanke told the House Oversight and Government Reform Committee, according to the Associated Press. “Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances.”

Rep. Darrell Issa, R-Calif., the top Republican on the House Oversight and Government Reform Committee said the central bank “engaged in a cover up” of the deal, pressuring Bank of America CEO Kenneth Lewis to withhold information about Merrill Lynch’s financial troubles and go through with the deal.

In a statement, Issa said that the Fed “deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies.”

With Fed approval, Bank of America bought New York-based Merrill Lynch in September for $29 billion. Bank of America later requested another $20 billion in capital from the government’s bailout fund, the Troubled Asset Relief Program or TARP, to protect them from losses related to the Merrill Lynch aquisition.

Bank of America completed the acquisition of Merrill Lynch in January without fully disclosing to investors that fourth- quarter losses had grown beyond what Lewis expected, according to Bloomberg News. The company later said it would receive the second bailout from the Treasury to cushion Merrill’s losses.

Lewis would have been obligated to report the financial condition of Merrill Lynch to investors.

Bank of America received $45 billion from the government’s financial bailout program, $20 billion of which was linked to its acquisition of New York-based Merrill Lynch.

He told the House committee earlier this month that government officials urged him to complete the deal, threatening to oust him as well as the bank’s board members.

When asked Thursday about his take on Bank of America’s management, Bernanke said: “I did have concerns, yes.”

The probe comes as the Obama administration declared that it would institute new regulations to improve financial oversight of companies that received bailout funds during the financial crisis.

Both Bernanke and former Treasury Secretary Henry Paulson Jr. have denied the charges of wrongdoing.

“I believe that the Federal Reserve acted with the highest integrity throughout its discussions with Bank of America regarding that company’s acquisition of Merrill Lynch,” Bernanke told committee members Thursday.

House investigators obtained documents, including e-mails between Fed officials which show that Bank of America executives were asking the Federal Reserve to guarantee additional government funds in exchange assuming Merrill’s losses, news agencies report.

At the same time as the Bank of America deal, the Federal Reserve declined to provide support to the failing Lehman Brothers firm, which eventually collapsed and became became the largest corporate bankruptcy in U.S. history.

Paulson is expected to testify before the committee sometime next month.