In a three-hour hearing of the House Oversight and Government Reform Committee, Mr. Bernanke denied threatening to oust Bank of America's CEO Kenneth Lewis or the bank's board members if they abandoned the takeover after discovering spiraling losses at Merrill.
"I never said that I would replace the board and management" if Lewis decided to invoke a clause in the acquisition contract to try to stop the deal, Mr. Bernanke told the committee.
It was Mr. Bernanke's first public response since the committee launched an investigation into whether he or other government officials bullied Bank of America to stick with its plan to combine the two financial powers.
Throughout the day, Mr. Bernanke faced often hostile questioning -- unusual for a Fed chairman, who typically commands deference.
Of Mr. Bernanke's denial that he threatened Mr. Lewis' job, Rep. Jason Chaffetz, R-Utah, said: "With all due respect, I'm just not buying that."
Neither was Rep. Dan Burton, R-Ind., who huffed: "This is not a socialist society."
Adopting the role of outsider, Republicans in particular have turned aggressive toward Mr. Bernanke, trying to link him to the Obama administration as advocates of government meddling in private industry. Many Republicans are suspicious of the administration's plan to expand the Fed's regulatory powers.
It's an odd shift, because Mr. Bernanke is a Republican appointee, and many of his key advocates are Democrats. And it comes at a pivotal time: Mr. Bernanke's term expires early next year, and President Obama will have to decide whether to pick his own Fed chief or reappoint Mr. Bernanke.
The Fed chief said it would have been a bad idea for Bank of America to invoke the deal's escape clause, because it would have led to extended and costly litigation with Merrill Lynch. That would have "greatly reduced or destroyed" the value of the investment bank, he said.
"I expressed those concerns, which is appropriate, but it was always (Mr. Lewis') decision whether or not to go ahead and take that decision," Mr. Bernanke said.
Earlier this month, Mr. Lewis testified that his job had been threatened after he expressed second thoughts about the deal. Mr. Lewis said the Treasury secretary at the time, Henry Paulson, and federal regulators made clear that if Charlotte-N.C.-based Bank of America Corp. reneged on its promise, he and the bank's board members would be fired.
Mr. Bernanke also denied allegations that he or any other Fed official urged Bank of America to keep quiet about Merrill Lynch's financial problems.
E-MAILS ON MERRILL LYNCH PURCHASE
Some excerpts from the e-mails released by the House Government Oversight Committee on Thursday as part of its investigation into the Fed's role in Bank of America's purchase of Merrill Lynch:
Jeffrey Lacker, president of the Richmond Federal Reserve Bank, in a Dec. 20 e-mail to other Richmond Fed officials: "Just had a long talk with (Federal Reserve Chairman) Ben (Bernanke). Says they think (Bank of America's threat to back out of Merrill purchase) is irrelevant because it's not credible. Also intends to make it even more clear that if they play that card and then need assistance, management is gone."
Mr. Lacker added, presumably tongue-in-cheek, "Forgot to tell him (Mr. Lewis) is near retirement."
(Mr. Bernanke on Thursday denied ever threatening to oust Bank of America CEO Ken Lewis and said he never told anyone else to, either).
FED TO SCALE BACK EMERGENCY LENDING
WASHINGTON --- The Federal Reserve moved Thursday for the first time to scale back several of the emergency lending programs it launched last fall at the height of the financial crisis.
The Fed will allow one program intended to support money market mutual funds -- which hasn't been used -- to expire Oct. 30. And it's reducing the maximum it will lend to banks under two other programs.
The central bank on Thursday extended until Feb. 1, 2010, five lending programs that had been slated to expire Oct. 30.
In addition, the Fed is buying $1.75 trillion in mortgage-backed securities, Treasury bonds and other debt in an effort to keep interest rates low.
-- Associated Press