Bernanke Denies Strong-Arming Bank Of America Federal Reserve Chairman Ben Bernanke denied Thursday that he strong-armed Bank of America into a costly taxpayer-supported acquisition of Merrill Lynch. The comments before a House panel come weeks after Bank of America CEO Kenneth Lewis said his job was threatened after he expressed reservations about the deal.
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Bernanke Denies Strong-Arming Bank Of America

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Bernanke Denies Strong-Arming Bank Of America

Bernanke Denies Strong-Arming Bank Of America

Bernanke Denies Strong-Arming Bank Of America

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Federal Reserve Chairman Ben Bernanke denied Thursday that he strong-armed Bank of America into a costly taxpayer-supported acquisition of Merrill Lynch. The comments before a House panel come weeks after Bank of America CEO Kenneth Lewis said his job was threatened after he expressed reservations about the deal.

MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

On Capitol Hill today, members of a House committee came out swinging against the chairman of the Federal Reserve, Ben Bernanke. They wanted Bernanke to admit that he had forced Bank of America to buy Merrill Lynch last fall. Didn't he threaten to fire Bank of America's management if it pulled out of the deal? Didn't the fed keep other agencies in the dark? For over three hours of questions like that, Bernanke stood his ground.

NPR's Yuki Noguchi reports.

YUKI NOGUCHI: At the time the controversial merger was negotiated, things could not have looked worse for the U.S. economy. Bernanke and former Treasury Secretary Henry Paulson were daily throwing billions of dollars at financial companies to try to prevent total collapse. With tensions high, the government needed Bank of America to buy the ailing Merrill. But House Oversight Committee Chair Edolphus Towns wanted to know, in the process, did they overstep the line?

Representative EDOLPHUS TOWNS (Democrat, New York; Chairman, House Oversight Committee): Chairman Bernanke, did you instruct Hank Paulson to tell Ken Lewis that he and his board would be fired if they backed out of the Merrill deal?

Mr. BEN BERNANKE (Chairman, Federal Reserve): I did not.

Rep. TOWNS: Well, I understand that Mr. Paulson told Mr. Cuomo that you did. I just want to share that with you.

Mr. BERNANKE: I did not instruct Mr. Paulson or anyone else to convey such a threat or message to Mr. Lewis.

NOGUCHI: Not satisfied, Indiana Republican Dan Burton made another go.

Representative DAN BURTON (Republican, Indiana): In a letter from New York Attorney General Andrew Cuomo to Congress, Cuomo reports that Paulson told him that Paulson made the threat at the request of Bernanke. That's not correct?

Mr. BERNANKE: No.

NOGUCHI: More members asked the question over and over with no different affect. The Bank of America deal and how it finally came to pass has captured the attention of Congress, not only because its character is in shadowy dealings made for great drama, it has also shed at least partial light into how the nation's most powerful players in finance acted in desperate times.

California Democrat Jackie Speier had another question.

Representative JACKIE SPEIER (Democrat, California): Some of these emails would suggest that there was an active interest in not telling the SEC certain things, and that they were finding out through other means. I mean, this is a government. We're all part of the government. It's really our responsibility to work together. So it appears that someone was trying to hide the ball and I'm just trying to understand why.

NOGUCHI: Bernanke said there were lots of problems and only limited time.

California Republican Darrell Issa tried nailing Bernanke with one of the sharpest weapons the members had: an email from a Richmond fed official recounting a conversation with Bernanke, which Issa read to the unflinching fed chairman.

Representative DARRELL ISSA (Republican, California): Also intends to make it even more clear that if they play that card and they needed assistance, management is gone. Now, is he misunderstanding what the conversation he had with you, in those quotations?

Mr. BERNANKE: I don't recollect everything that was said in that conversation...

NOGUCHI: This was about the only issue Bernanke had to say he couldn't recall. Bernanke reminded the committee that, at the time the deal was announced, the government just took over Fannie Mae and Freddie Mac. The same week, Lehman Brothers failed and AIG was spiraling out of control. Annulling the marriage of Bank of America and Merrill, he said, would have destabilized the economy and both banks, and would have served no one's interests.

Mr. BERNANKE: I hope that Congress will take actions to insure that the system will remain stable and that no such actions will be needed in the future. I very, very much regret being involved in them, but I saw no alternative at the time.

NOGUCHI: Yuki Noguchi, NPR News.

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