Former Treasury Secretary Henry Paulson is expected to vindicate Bank of America Corp. Chief Executive Officer Ken Lewis in testimony today by acknowledging he threatened the banker's job if he did not complete the late 2008 merger with Merrill Lynch & Co.
Lewis has told lawmakers and the New York attorney general that he moved forward with the merger only after Paulson relayed a message from Federal Reserve Board Chairman Ben Bernanke that Lewis and his board of directors would be fired unless the deal was completed.
The House Oversight and Government Reform Committee is taking a close look at what happened and plans to hold its third hearing on the matter today.
In his first appearance before Congress since leaving office in January, Paulson will say that walking away from the deal would have represented a "colossal lack of judgment" on B of A's part.
According to a copy of his testimony, Paulson plans to say that he told Lewis, "that, under such circumstances, the Federal Reserve could exercise its authority to remove management and the board of Bank of America."
When Bernanke appeared before the committee last month, he denied applying any pressure or asking any one else to do so.
"I did not tell Bank of America's management that the Federal Reserve would take action against the board or management if they decided to" abandon the deal, he said. "I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances."
The debate has some bearing on the broader question of how to reform financial services regulation.
In an e-mailed statement Wednesday, Kurt Bardella, a spokesman for Republicans on the Oversight Committee, said those members plan to ask: "Do committee Democrats believe that Secretary Paulson's use of threats and intimidation were inappropriate or justified?"
