Legislators on Thursday pounded Federal Reserve Chairman Ben S. Bernanke with questions about his role in Bank of America Corp.'s purchase of Merrill Lynch & Co., 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 Bernanke became visibly frustrated as he answered the same questions again and again.
The Fed has received some of the broadest criticism in its modern history for its failure to prevent the financial crisis and for 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 to be subjected to greater congressional oversight, and there is skepticism about an administration proposal to expand the Fed's responsibilities as part of an overhaul of financial-industry 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," committee Chairman Rep. Edolphus Towns (D-N.Y.) said. "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 Kenneth Lewis informed regulators that his company had cold feet. The deal closed Jan. 1 after the government pledged to invest $20 billion and limit Bank of America's losses on a portfolio of troubled loans.
