A House of Representatives committee on Tuesday said it would subpoena the Federal Reserve to force the central bank to surrender documents regarding its role in Bank of America's
The subpoena comes two days before Bank of America Chief Executive Ken Lewis is set to testify before the House Oversight Committee, which is probing the transaction, what Lewis knew about Merrill's financial condition and potential regulatory pressure to complete the deal.
Lewis, in testimony prepared for the hearing, said he became aware of significant, accelerating losses at Merrill in mid-December after the shareholder vote. Lewis has consistently maintained in statements that he did not realize the severity of Merrill's problems until after that vote.
The CEO, who has since been ousted as chairman, also said he told Treasury and Fed officials he was considering declaring a material adverse change which would have allowed it to walk away from the acquisition.
Treasury and Federal Reserve representatives asked us to delay any such action, and expressed significant concerns about the systemic consequences, Lewis said in the testimony.
Fed chairman Ben Bernanke has denied previous assertions by Lewis about pressure. A spokeswoman for former Treasury Secretary Henry Paulson has said Paulson told Lewis there was no need to terminate the deal.
Chairman Edolphus Towns was joined by the ranking Republican Darrell Issa in agreeing to serve the subpoena on the Federal Reserve.
The lawmakers said the Fed would only allow committee staff to review documents at the Federal Reserve's Washington offices, which they did for several days, according to a letter dated June 3 to Fed chairman Ben Bernanke.
Following the staff review, we conclude that we will need copies of these documents, they wrote.
The Fed has been under intense pressure from Congress to make public more information about its lending programs, during a time when it has taken an unprecedented role in bailing out financial firms and other companies.
A Fed spokeswoman said the bank was concerned that documents sought by the committee contained information that financial institutions supply regulators on the condition they maintain confidentiality.
Faced with the subpoena, the Fed will now hand over the documents, the spokeswoman said.
Among the documents sought are handwritten notes from a December 19 meeting between Bernanke, Bank of America chief executive Ken Lewis and others.
Lewis has said the government pressured him to pursue the deal and to withhold information about losses at Merrill from investors, but regulators have disputed this characterization.
Bernanke in May resolutely refuted that claim.
I absolutely did not in any way ask Mr Lewis to obscure any disclosures or to fail to report information that should be reported, he told a congressional committee last month.
The lawmakers had previously asked Ben Bernanke to turn over dozens of documents related to the merger on March 30 and April 23.
(Reporting by Kim Dixon, Mark Felsenthal and Jonathan Stempel: editing by Carol Bishopric and Bernard Orr)