Former Treasury Secretary Henry Paulson, in remarks prepared for an appearance before a House panel on Thursday, plans to tell lawmakers his comments were appropriate when he warned BofA (BAC) CEO Ken Lewis that his bank’s management could be ousted if it walked away from the Merrill Lynch deal. Here are a few excerpts from Paulson’s Testimony.
[S]ome have suggested that there was something inappropriate about my conversation of December 21st with Mr. Lewis in which I mentioned the possibility that the Federal Reserve could remove management and the board of Bank of America if the bank invoked the MAC clause. I believe my remarks to Mr. Lewis were appropriate. I explained to him that the government was supportive of Bank of America, but that it felt very strongly that if Bank of America exercised the MAC clause, such an action would show a colossal lack of judgment and would jeopardize Bank of America, Merrill Lynch, and the financial system. I further explained to him that, under such circumstances, the Federal Reserve could exercise its authority to remove management and the board of Bank of America. By referring to the Federal Reserve’s supervisory powers, I intended to deliver a strong message reinforcing the view that had been consistently expressed by the Federal Reserve, as Bank of America’s regulator, and shared by the Treasury, 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.
I want to make clear that my words in speaking to Mr. Lewis were my own. Chairman Bernanke never asked me to indicate any specific action the Federal Reserve might take. I also want to make clear, however, that I was expressing what I am confident was the strong opinion of the Federal Reserve, namely, that exercise of the MAC clause was not a legally viable option; that it threatened significant harm to Bank of America and to the financial system; and that it would raise serious questions about the competence and judgment of Bank of America’s management and board.
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