Ben Bernanke Defends Bank Bailout

25 June 2009

The chief of the U.S. central bank is defending his actions in the multi-billion dollar bailout of one of the nation's largest banks.

Ben Bernanke testifies on Capitol Hill in Washington, 25 Jun 2009, before House Oversight and Government Reform Committee hearing

Federal Reserve Chairman Ben Bernanke told a government oversight committee, the House Oversight and Government Reform Committee, Wednesday the Fed acted "with the highest integrity" during a merger between the private Bank of America and failing investment bank Merrill Lynch.

Critics say Bernanke and former U.S. Treasury Secretary Henry Paulson told Bank of America its top officials would be fired if they failed to go ahead with the deal. Others, including the oversight committee's ranking opposition member, Republican Representative Darrell Issa, accuse them of taking part in a government "cover-up."

Bernanke repeatedly denied both allegations, saying the Fed only acted to prevent the financial crisis from spreading.

The deal, late last year, was part of Washington's effort to rescue the troubled financial system.

The political controversy comes as President Barack Obama is proposing to give the Federal Reserve more power as part of a plan to reform the country's financial system.

Some lawmakers say the U.S. central bank already has too much power.

Bank of America Chief Executive Kenneth Lewis testified earlier this month he was told he and other top executives would lose their jobs if they tried to back out of the deal.

Oversight committee chairman, Representative Edolphus Towns, a Democrat from New York, said much of what happened during the financial crisis "remains shrouded in secrecy."

Bank of America received $45 billion in emergency loans from the U.S. government. Almost half of the emergency aid was tied to the takeover of Merrill Lynch.

Lawmakers have also accused federal regulators, including the Federal Reserve and the Treasury Department, and Bank of America executives of withholding information about the merger from investors.