WASHINGTON — Kenneth Lewis, the chief executive of Bank of America Corp., may have been the one in the hot seat at a House hearing Thursday, but much of the criticism appeared directed at Federal Reserve Board Chairman Ben Bernanke and Henry Paulson, the former Treasury secretary.
For nearly two and a half hours, lawmakers on the House Oversight and Government Reform Committee peppered the B of A chief with questions about his company's deal for Merrill Lynch, which closed only after the government chipped in $20 billion.
Their goal was to determine whether Lewis went ahead with the deal — which he had reservations about — only after Paulson relayed a message that Bernanke would seek to fire him and his board if the purchase faltered.
Lewis tried to argue that he was not bullied into the deal, but skeptical lawmakers pressed him to say whether he felt threatened.
"I know that you're in a difficult situation," Rep. Elijah Cummings, D-Md., told Lewis. "I know you're trying to be nice … but you come down here trying to tell us, 'I was worried. The sky was falling.' And we don't buy it, so I'm going to give you another opportunity. You didn't feel threatened?"
The line of questioning put Lewis, who testified to the committee under oath, in the awkward position of explaining why he went through with the deal while steering clear of statements that could anger regulators.
The prospect of a forced management change "was a strong influence on my decision" to go ahead with the Merrill purchase, Lewis responded. "But it wasn't the only influence."
He said he was more alarmed that Bernanke and Paulson would consider forcing a management change at an institution that, at that point, was considered strong.
"The threat was not what gave me concern," he said. "What gave me concern was they would make that threat to a bank in good standing."
But his explanations did not sit well with many members of the committee.
"Can it be looked at in any way other than a threat?" asked Rep. Jason Chaffetz, R-Utah.
The Fed did not comment on the charges made during the hearing, and Bernanke and Paulson were not invited to testify. The committee's chairman, Rep. Edolphus Towns, D-N.Y., said they would be asked to appear before the panel soon.
The question of whether the Fed threatened Lewis could become important on Capitol Hill if it reinforces an image in lawmakers' minds of a powerful, yet unaccountable, central bank. House Republicans and Financial Services Committee Chairman Barney Frank said Thursday that they favor putting limits on the Fed's emergency powers to provide assistance in unusual and exigent circumstances. (See related story.)
"Today's hearing is about whether the government asserted strong influence that would be outside the ordinary influence of a neutral party," said Rep. Darrell Issa, R-Calif.
Rep. Dennis Kucinich, D-Ohio, derided what he called the "secretive and unaccountable conduct of the Fed throughout its interventions addressing the current financial crisis."
As Congress debates making the Fed a systemic risk regulator, Rep. Towns said lawmakers should consider the Fed's role in the B of A-Merrill deal.
"It's fair to observe that a flawed financial regulatory process was at work here," he said. "Regulators seemed to be making up the rules as they went along. As Congress considers financial regulatory reform, we need much more transparency and accountability in the regulatory and oversight process."