The top Republican on the Senate Banking Committee is calling for hearings into whether federal officials placed undue pressure on Bank of America to buy floundering investment bank Merrill Lynch last fall.
Bank of America CEO Ken Lewis testified to the New York Attorney General that then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke pushed him to complete the Merrill deal after mounting losses at Merrill prompted Lewis to seek to end the purchase.
A few weeks ago Shelby asked Sen. Chris Dodd (D-Conn.), chairman of the Senate Banking Committee, to hold a hearing into the matter. Dodd’s office did not immediately respond as to whether that hearing will happen.
Other lawmakers have indicated interest in looking into the incident, and Cuomo sent Dodd and House Financial Services Chairman Barney Frank (D-Mass.) the findings of his investigation, urging further review.
Lewis’ testimony, given to Cuomo in February but released only recently, indicated that Paulson threatened to remove Lewis and Bank of America’s entire board if they backed out of the Merrill deal. Lewis also said he felt pressured to remain silent about Merrill’s worsening financial health.
Shelby said that Bernanke, joining Senate Republicans for their weekly caucus lunch, denied ordering Paulson to deliver that threat, as has been alleged. “But I think that doesn’t put it to rest,” Shelby said. “Something happened there, and we don’t know the facts. Perhaps we never will but we’re going to try to find out.”
“In my judgment the secretary of the Treasury and the chairman of the Federal Reserve should never put pressure on someone, whether its Ken Lewis or anyone else, threaten them, express or implied that if you don’t do this we will fire you and the board ... especially when it can endanger the viability of that bank,” he said, referring to the financial pain Merrill’s big losses has brought to Bank of America.
But Shelby also pointed a finger at Lewis for keeping quiet. Lewis had a “legal and moral obligation to divulge that information not to his board but to [Bank of America] stockholders,” he said.
“I would have called a press conference.”
The issue also came up Tuesday during Bernanke’s testimony on the economy before the Joint Economic Committee. In response to questions about his role, Bernanke said that “I absolutely did not in any way ask Mr. Lewis to obscure any disclosures or to fail to report information that he should be reporting.”