Bank of America Corp's chief executive said on Thursday it would be a nightmare for U.S. banks to be nationalized, wiping out shareholders and perhaps bondholders, and further damaging an economy that might begin to recover as soon as this year.

Lewis faces heavy pressure from investors to show that Bank of America can make it through the recession on its own, and is in much better shape than rival Citigroup Inc . Some critics have called for his removal in the wake of the rushed --and so far troubled -- Merrill purchase.

Lewis praised government efforts to revive banks hurt by hundreds of billions of dollars in writedowns and credit losses, but agreed with Federal Reserve Chairman Ben Bernanke that full takeovers are the wrong way to go.

Nationalization would be a nightmare and send shudders through investors, he said.

It would give the false impression that all banks are insolvent, and investors would immediately start betting on which banks would be next, possibly creating a self-fulfilling prophecy, he said. And government control of large banks would politicize lending decisions and the capital allocation process, damaging the economy.

Lewis said government efforts so far to spur lending and consumer spending should turn the economy around. We are going to break the back of this thing, and I still believe we'll do it this year, Lewis said. There is too much ammunition being fired from too many directions to not bring this beast down.

He also said banks have to reassess how they manage risk, but that TARP has worked very well and enabled banks to lend more. What's gone is the easy credit that got us into this mess, as unregulated nonbank lenders have failed, he said.

Lewis also touched on two areas that have drawn fire from politicians and banking industry critics: executive pay and sponsorships of sports teams.

Alluding to a provision in February's government stimulus package, Lewis said it is wrong to require TARP recipients to cap pay of executives who are just below the top level and produce high amounts of revenue. He said they could be lured by foreign banks or boutique firms not subject to such limits.

He also said Bank of America's sports marketing efforts generate $3 of profit and $10 of revenue for every dollar spent. The bank has a wider array of sports sponsorships than any other lender. It is the official bank of Major League Baseball and NASCAR, and has the naming rights to the Carolina Panthers football team in its hometown, Charlotte, north Carolina.

(Reporting by Elinor Comlay and Jonathan Stempel; editing by Jeffrey Benkoe)