Paulson says acted appropriately on BofA

By Mark Felsenthal

WASHINGTON (Reuters) - Former U.S. Treasury Secretary Henry Paulson said that he acted appropriately in warning Bank of America (BAC.N) Chief Executive Kenneth Lewis that top executives could be ousted if they walked away from a merger with Merrill Lynch.

While Paulson acknowledged in prepared congressional testimony that he told Lewis the U.S. Federal Reserve could oust the bank's management and board if it walked away from the deal, he said Fed Chairman Ben Bernanke never instructed him to indicate to Lewis any actions the Fed might take.

"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 judgement," said Paulson, who is due to testify before a House of Representatives panel on Thursday. A copy of the testimony was made available on Wednesday.

Lawmakers have focussed on government actions during the Bank of America merger with Merrill to vent frustration at authorities' handling of the financial crisis that has cost U.S. taxpayers hundreds of billions of dollars in financial bailouts while tipping the economy into a deep recession.

Paulson's appearance follows testimony by Lewis and Bernanke before the same House Oversight and Government Reform panel.

Some lawmakers have slammed what they say was government heavy-handedness in pressuring Bank of America to go through with the deal after escalating losses at Merrill came to light.

Others are unhappy over what they believe was government pressure on Bank of America to withhold information from shareholders about Merrill's losses.

As the Obama administration and Congress debate steps to strengthen financial oversight in the wake of the crisis, many lawmakers have questioned whether the Fed should be given an expanded role given concerns about its role in the deal.