Congressman: Bernanke Tried to 'Cover Up' BofA Threats

June 24, 2009— -- Federal Reserve Chairman Ben Bernanke tried to "cover up" government pressure on Bank of America's CEO Ken Lewis to finalize its acquisition of Merrill Lynch, according to the ranking Republican member of the House Oversight and Government Reform Committee a day before the Fed chief testifies before that panel about this year's merger.

"The committee has already learned that Ben Bernanke and the Federal Reserve made inappropriate threats to fire Bank of America management unless they went ahead with the 'shotgun wedding' that was the Merrill Lynch acquisition," Rep. Darrell Issa, R-Calif., said today. "The Federal Reserve also engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies."

Legislators want to know if federal regulators threatened to fire Lewis and the entire board of directors of Bank of America if the bank decided to back out of the deal with Merrill Lynch. Bank of America officials reportedly indicated they considered citing a "Material Adverse Charge," or "MAC clause," which would allow it to possibly cancel the acquisition after the bank learned Merrill Lynch had lost billions of dollars at the end of last year.

In recent weeks, the panel has served two subpoenas to the Fed to obtain approximately 100 documents about the merger, including e-mails from Bernanke, Lewis and Treasury Secretary Tim Geithner.

Bernanke, former Treasury Secretary Henry Paulson and Lewis have denied that the government pressured either bank not to disclose key information during the merger process.

In one e-mail obtained by the committee, the president of the Federal Reserve Bank of Richmond, Jeffrey Lacker, wrote, "Just had a long talk with Ben. Says that they think the MAC threat is irrelevant because it's not credible. Also intends to make it even more clear that if they play that card and they need assistance, management is gone."

In another e-mail obtained by the panel, written by Bernanke himself, the Fed chief said, "I think the threat to use the MAC is a bargaining chip, and we do not see it as a very likely scenario so that we can explain to [Bank of America] with some confidence why we think it would be a foolish move and why the regulators will not condone it."