Former Treasury Secretary Henry Paulson said he warned Bank of America (BAC) CEO Ken Lewis that regulators could remove him and other executives at the company if they pulled out of a deal to buy Merrill Lynch, he told a congressional committee investigating the deal.

Paulson told the House Oversight Committee that he "intended to deliver a strong message" to Lewis that "it would be unthinkable for Bank of America to take this destructive action for which there was no reasonable legal basis and which would show a lack of judgment."


Paulson's testimony follows appearances before the committee by Lewis and Federal Reserve Chairman Ben Bernanke. Lawmakers are trying to figure out whether Paulson and Bernanke improperly pressured Lewis to complete the deal even though Merrill Lynch's financial health was rapidly deteriorating.

"I believe my remarks to Mr. Lewis were appropriate," Paulson said. That echos Bernanke's comments. The Fed chief said the central bank acted with "the highest integrity" during talks with Bank of America when he testified before the panel three weeks ago.

The committee is also seeking to determine whether Lewis threatened to scuttle the merger in an attempt to gain additional government support for the deal. Lewis denied that during his testimony last month.

Rep. Edolphus Towns (D-N.Y.), the committee's chairman, called the merger a "shotgun wedding" during the panel's first hearing on the subject last month. Today, he said the deal seemed more like a "marriage of convenience" in which both Bank of America and the government got what they wanted.

"Was Bank of America really forced to go through with the deal, or was this an old-fashioned Brooklyn shakedown?" asked Towns, whose district is in that New York City borough.


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