Lawmaker accuses Fed of "cover-up" in BofA deal

By Kim Dixon
WASHINGTON (Reuters) - The Federal Reserve sought to hide its involvement in Bank of America Corp's acquisition of Merrill Lynch as Merrill's financial condition worsened, the top Republican on the House Oversight and Government Reform Committee said on Wednesday.
The Fed "engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies," Representative Darrell Issa said in a statement released to Reuters.
Bernanke has in the past denied any inappropriate pressure on Bank of America. Fed spokeswoman Michelle Smith on Wednesday referred to a letter Bernanke sent Representative Dennis Kucinich on April 30 and later testimony in which he offered an "unconditional assertion" that he did not ask Bank of America CEO Ken Lewis to withhold information regarding Merrill.
"The Federal Reserve acted with the highest integrity throughout its discussions with Bank of America," Bernanke wrote to the Ohio Democrat, who chairs a subcommittee on the Oversight panel.
The Democrat who heads the committee, Edolphus Towns of New York, has called Bernanke to testify on Thursday. "I am not going to prejudge these issues. We are not even close to finishing the Bank of America-Merrill Lynch investigation at this point," Towns said in a statement.
Former U.S. Treasury Secretary Henry Paulson has also been called to testify before Congress next month about the Bank of America-Merrill Lynch transaction. His planned appearance was confirmed in an e-mail from Jenny Rosenberg, an aide to Towns, who said no date had been set for Paulson's testimony.
POLITICAL FOOTBALL
Democrats on the panel have focused on whether Bank of America's Lewis illegally misled investors about Merrill's finances, while Republicans have zeroed in on whether the Fed and former Treasury Secretary Henry Paulson inappropriately pressured Lewis to seal the deal.
The issue has become a political football as lawmakers look to blame someone for the troubled deal amid taxpayer anger over the billions of dollars the government infused into banks to try to ease the world financial crisis.
A Democratic source close to the committee said Republican members leaked documents just before a hearing earlier this month where Lewis testified. "They framed the story by looking at only a few of the documents," said the source, who was not authorized to be quoted on the matter.
Some Democrats believe Bank of America's Lewis had to know about Merrill's deepening losses and that Lewis was threatening to pull out of the deal as a way to get more assistance from the Fed. Still, the Democratic source said, "The Fed does not come out smelling like roses."
Kucinich said what is remarkable about the situation was that the Fed required no changes in the bank's leadership or conditions on the billions that did go to Bank of America.
The bank, which did not return a phone call seeking comment, has taken $45 billion in bailout funds from the government.
Other documents released by the committee earlier this month revealed that a Fed analysis found deficiencies in the due diligence conducted by Bank of America prior to the Merrill deal.
PRESSURE, DISCLOSURE Continued...
Source: Reuters