U.S. lawmakers accused the Treasury and Federal Reserve on Thursday of using threats and intimidation to force Bank of America to take over Merrill Lynch, a charge Bank of America Chief Executive Ken Lewis denied.

Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson effectively put a gun to the head of Lewis to close the deal quickly amid the worsening U.S. banking crisis in late 2008, according to Republicans on the House Oversight and Government Reform Committee.

Bernanke and Paulson will be asked to testify at a later date before the panel.

Edolphus Towns, Democratic chairman of the committee, said the Merrill deal was pushed through behind closed doors, and through coded messages and private e-mails, evidence of a deeper malaise in financial supervision.

Basically, the regulators and the financial institutions seemed to be making up the rules as they went along, Towns said, adding that the incident should help shape financial regulatory reforms that Congress is exploring.

Lewis told his board the Fed and Treasury would remove the board and bank management if it did not complete the purchase of Merrill Lynch despite growing financial losses there, according to board minutes cited at Thursday's hearing.

If that isn't a threat, I don't know what is, Democrat Elijah Cummings said.

But Lewis was also hammered by lawmakers who said he must have known earlier than he claimed about heavy losses at Merrill, which lost $15.84 billion in the 2008 fourth quarter.

Asked if the bank's consideration of triggering a clause to pull out of the deal should have been relayed to shareholders, Lewis said: I'd leave that decision to our securities lawyer and our outside counsel.

LEWIS: NO UNDUE THREAT

Lewis agreed there had been pressure to proceed with the purchase of Merrill but declined, despite repeated questioning, to characterize the stance of Bernanke and Paulson as improper or an undue threat.

Lewis, who kept his answers brief and smiled and laughed at times during three hours of grilling, said Bernanke and Paulson never asked him to keep information secret that the bank wanted to disclose to shareholders.

I would say they strongly advised and they spoke in strong terms but I thought it was with good intentions, he said.

It was in the context of them thinking it was in the best interests of Bank of America and the financial system.

Bank of America is regulated by the Federal Reserve. A Fed spokesman had no immediate comment on the hearing.

Lewis agreed to buy Merrill Lynch in a deal put together with Treasury's assistance as Wall Street and the U.S. economy fell into a deep tailspin. Shareholders of Bank of America and Merrill voted in favor of the merger last December 5.

The acquisition went ahead on January 1 but was followed later that month by $20 billion in taxpayer aid to help Bank of America absorb Merrill Lynch.

Lewis has said it was only later in December that he learned how fast Merrill was deteriorating, and then threatened to pull out of the merger, with officials of the Treasury and the Federal Reserve pushing for completion of the deal.

This transaction took place in a climate of fear and intimidation by government officials, said Republican Jim Jordan of Ohio.

Towns, the panel chairman, said he would not draw any final conclusions until Bernanke and Paulson testified.

Did Paulson and Bernanke abuse their authority by ordering Mr. Lewis to go through with the Merrill acquisition, or did Mr. Lewis threaten to back out in order to squeeze more money out of the federal government?, Towns asked.

Democrat Dennis Kucinich said Lewis, who testified under oath, might have committed perjury during the hearing. Lawmakers would have to hear from Fed officials before deciding, he added.

Bernanke's term as chairman of the Fed expires at the end of January. Paulson, who headed Goldman Sachs before President George W. Bush named him treasury secretary, is now with Johns Hopkins School of Advanced International Studies.

In April, Bank of America shareholders voted to oust Lewis as chairman but the board expressed support for him to remain as chief executive.

(Writing by John Whitesides; Additional reporting by Mark Felsenthal; Editing by Tim Dobbyn)

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