Mr. Lewis, testifying under oath before New York's attorney general in February, told prosecutors that he believed Messrs. Paulson and Bernanke were instructing him to keep silent about deepening financial difficulties at Merrill, the struggling brokerage giant. As part of his testimony, a transcript of which was reviewed by The Wall Street Journal, Mr. Lewis said the government wanted him to keep quiet while the two sides negotiated government funding to help BofA absorb Merrill and its huge losses.
Under normal circumstances, banks must alert their shareholders of any materially significant financial hits. But these weren't normal times: Late last year, Wall Street was crumbling and BofA faced intense government pressure to buy Merrill to keep the crisis from spreading. Disclosing losses at Merrill -- which eventually totaled $15.84 billion for the fourth quarter -- could have given BofA's shareholders an opportunity to stop the deal and let Merrill collapse instead.
"Isn't that something that any shareholder at Bank of America...would want to know?" Mr. Lewis was asked by a representative of New York's attorney general, Andrew Cuomo, according to the transcript.
"It wasn't up to me," Mr. Lewis said. The BofA chief said he was told by Messrs. Bernanke and Paulson that the deal needed to be completed, otherwise it would "impose a big risk to the financial system" of the U.S. as a whole.
Mr. Lewis's testimony suggests how aggressively federal regulators have been willing to behave in their fight to fix the U.S. financial system. The testimony for the first time spreads some of the blame to Messrs. Paulson and Bernanke for Mr. Lewis's decision to keep problems at Merrill under wraps.
"Everybody -- Lewis, Paulson, Bernanke -- eventually agreed that any public discussion of the situation at Merrill would have adverse consequences for the system," according to an individual close to BofA.
A person in government familiar with Mr. Bernanke's conversations with Mr. Lewis said Wednesday that the Fed chairman didn't offer Mr. Lewis advice on the question of disclosure. Instead, Mr. Bernanke suggested Mr. Lewis consult his own counsel.
Mr. Paulson repeatedly told Mr. Lewis that "the U.S. government was committed to ensuring that no systemically important financial institution would fail," according to his spokeswoman.
Mr. Lewis couldn't be reached for comment. A BofA spokesman said, "We had no legal obligation to disclose ongoing negotiations with the government and disclosure of ongoing negotiations likely would have severely disrupted the global financial markets and damaged the bank."
In the transcript reviewed by the Journal, Mr. Lewis didn't say he was explicitly instructed to keep silent about the losses piling up at Merrill. But his testimony indicates that he believed the government wanted him to remain silent.
Mr. Cuomo's investigator asked: "Wasn't Mr. Paulson, by his instruction, really asking Bank of America shareholders to take a good part of the hit of the Merrill losses?"
According to a person familiar with the matter, Mr. Paulson in March told Cuomo investigators that Mr. Lewis may have misinterpreted some remarks about the Treasury's disclosure obligations as referring to BofA's obligations.
The transcript, which stems from an investigation into bonus payments at BofA conducted by the New York attorney general's office, illuminates the difficult dilemmas that regulators and executives alike have had to wrestle with in recent months. By keeping mum, the CEO of one of the biggest U.S. banks appeared to set aside a basic tenet of American-style finance -- that, above all, companies must disclose material information to shareholders and potential investors
"Regulators are supposed to tell you to obey the law, not to disobey the law," said Jonathan R. Macey, deputy dean of Yale Law School. "If you're the CEO, your first obligation is not to your regulator, it's to your institution and shareholders."
At the same time, regulators were struggling to prevent a systemic panic. In the transcript, Mr. Lewis is quoted saying that the regulators' goal was to put everything in place for the deal to be done, "so that you didn't set off alarms in a tragic economy."