"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 said in written testimony obtained by ABC.
In the testimony, to be delivered Thursday to the House Committee on Oversight and Government Reform, Paulson said BOA's chief executive, Kenneth D. Lewis, had told him it was pulling out of the deal under the "material adverse change" that can be used as grounds for not going ahead with ratified mergers.
In response, ABC reported, Paulson says in his prepared testimony he told Lewis the bank's management and governing board could be removed by the Federal Reserve if it refused to go ahead with the deal.
Paulson says he made the threat to send a "strong message" and felt compelled to act decisively to protect the "country's financial system" and the best interests of shareholders, customers, employees and creditors of the two banks, the network said.
In his testimony, The Washington Post reported, Paulson denies the government inappropriately pressured Bank of America to withhold information from shareholders. That information was about an agreement to provide the company with additional financial aid.
Bank of America had agreed to acquire Merrill Lynch in September, without federal support, but completed the deal in January only after the Treasury Department agreed to put an additional $20 billion into the company and to limit losses on loans.
The House committee already has heard Lewis and Ben Bernanke, the Federal Reserve chairman, testify about the merger, which has been roundly criticized.
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