Fed denies pressure in deal on banks

WASHINGTON - Federal Reserve Chairman Ben S. Bernanke faced an unusual political trial yesterday and disputed accusations that he pressured Bank of America Corp. to acquire Merrill Lynch & Co. Inc. in a deal that cost taxpayers $20 billion.

Bernanke denied to a House committee investigating the matter that he threatened action against Bank of America's chief executive officer Kenneth Lewis or bank board members if they abandoned the takeover.

It marked Bernanke's first public comments since the House committee launched an investigation this year into whether he or other government officials bullied Bank of America to stick with its plan to combine the two financial powers after Lewis learned of Merrill's financial woes.

The transaction was hammered out over the same weekend in September that another investment bank, Lehman Bros. Holdings Inc., went under.

During the three-hour hearing, Bernanke faced skepticism and often-hostile questioning - unusual for a Fed chairman, who typically commands deference in public settings.

Adopting the role of outsider, Republicans in particular have turned aggressive toward Bernanke, trying to link him to the Obama administration as advocates of government meddling in private industry. Many Republicans are suspicious of the administration's plan to expand the Fed's regulatory powers.

It is an odd shift, because Bernanke is a Republican appointee, and many of his key advocates are Democrats. And it comes at a pivotal time: Bernanke's term expires early next year, and President Obama will have to decide whether to pick his own Fed chief or reappoint Bernanke.

Earlier this month, Lewis testified that his job had been threatened after he expressed second thoughts about the deal. Lewis said then-Treasury Secretary Henry M. Paulson Jr. and federal regulators made clear that if Charlotte, N.C.-based Bank of America reneged on its promise, that he and the bank's board members would be ousted.

But in his testimony to the House Oversight and Government Reform Committee, Bernanke said he never told Bank of America executives that the Fed would punish them or the bank's board if they tried to stop the deal. And he said he never told anyone else to send such a message to the bank.

Rep. Jason Chaffetz (R., Utah) said of Bernanke's denial that he threatened Lewis' job: "With all due respect, I'm just not buying that."

Bernanke also said no member of the Fed urged Bank of America to keep quiet about Merrill Lynch's financial problems.

"Neither I nor any member of the Federal Reserve ever directed, instructed, or advised Bank of America to withhold from public disclosure any information relating to Merrill Lynch, including its losses, compensation packages, or bonuses, or any other related matter," he said.

The committee's ranking member, Darrell Issa (R., Calif.), accused the Fed of having "deliberately kept other regulators in the dark regarding the negotiations with Bank of America."