Bernanke fights back, says he didn't bully BofA to buy Merrill

— -- Facing an unusual grilling from Congress, Federal Reserve Chairman Ben Bernanke on Thursday denied that he used heavy-handed tactics to push through Bank of America's deal to buy Merrill Lynch even while the investment bank's financial condition was deteriorating.

Lawmakers confronted Bernanke with a barrage of documents they said showed that the Fed chief threatened to fire BofA's top managers if they backed out of the merger and that Fed officials tried to conceal Merrill's mounting losses from regulators and shareholders.

Rep. Dan Burton, R-Ind., cited a letter in which New York Attorney General Andrew Cuomo said former Treasury secretary Henry Paulson admitted threatening to fire BofA's board of directors at Bernanke's request.

"I didn't tell him anything like that," Bernanke said.

Burton also pointed to a Dec. 20 e-mail in which Fed President Jeffrey Lacker said Bernanke told him "management is gone" if the company followed through with a threat to nix the deal. "How about Mr. Lacker?" Burton asked. "Is he lying?"

"He's summarizing a long conversation," Bernanke replied. "I don't recall exactly what was said."

In any case, the Fed chief added, he did not actually threaten BofA CEO Kenneth Lewis. Rather, he said, he voiced his concerns about the effect of a derailed deal "both on the financial system and on Bank of America itself," noting it might have triggered a broader economic crisis and undermined investor confidence in the bank. But, he said, "It was always his decision whether or not to go ahead."

Lewis told the committee earlier this month that he felt pressured by the Fed to complete the merger but stopped short of saying he was threatened.

BofA's agreement to buy Merrill occurred in September during a period of unprecedented turmoil that included the failure of Lehman Bros., the government's takeover of mortgage giants Fannie Mae and Freddie Mac and the bailout of insurer American International Group.