Bernanke Holds Firm in Hot Seat
Friday, June 26, 2009
Legislators yesterday pounded Federal Reserve Chairman Ben S. Bernanke with questions about his role in Bank of America's purchase of Merrill Lynch, discarding the deference long accorded to him and his predecessors in a demonstration of mounting concern about the Fed's performance.
At a hearing before the House Committee on Oversight and Government Reform, Republicans repeatedly asked whether the Fed had inappropriately pressured Bank of America to complete the deal, while Democrats pressed Bernanke to explain why the Fed concealed for weeks its plans to provide aid to the company.
Bernanke strongly defended his role and the Fed's performance, saying that no laws were broken and that the merger has proved successful. He also repeatedly denied that he had pressured Bank of America executives to go forward with the deal. But he became visibly frustrated as he answered the same questions again and again without quieting his interrogators.
The Fed faces some of the broadest criticism in its modern history over its failure to prevent the financial crisis and its central role in the government's response. The institution has provided more than $1 trillion to prop up more than 400 financial firms. Members of both parties increasingly want the Fed subjected to greater congressional oversight, and there is broad skepticism about an administration proposal to expand the Fed's responsibilities as part of an overhaul of financial regulation.
The Merrill Lynch deal has become a focus of the debate about the Fed, even though the episode did not appear at the time to be a defining moment in the financial crisis.
"I believe that before Congress acts on the president's financial services reform proposal we need to have a thorough understanding of what caused the current financial crisis and how the federal government responded," said committee chairman Rep. Edolphus Towns (D-N.Y.) "It's time to yank the shroud off the Fed and shine some light on these events."
Bank of America agreed in September to buy the troubled investment bank without any federal assistance. In December, as Merrill's losses were rising faster than expected, Bank of America chief executive Ken Lewis informed regulators that his company had cold feet. In January, the deal closed after the government pledged to invest $20 billion and limit Bank of America's losses on a portfolio of troubled loans.
Lewis testified earlier this month before the same committee that the bank decided to complete the deal after officials urged the company to proceed. He said that Fed and Treasury officials had threatened that Bank of America executives could be removed if the deal did not close.
Bernanke flatly denied yesterday that he had issued such a warning, or told anyone else to do so.
"I did not," he said several times.
But the denials did not satisfy members of the panel, who repeatedly contrasted his testimony with the accounts of other participants.
According to e-mails from Fed employees, Bernanke told others at the central bank that he planned to inform Bank of America executives that they could lose their jobs if they walked away from the Merrill Lynch deal.