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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

and due diligence had been ongoing for “ months.” The two officials also believed
that invoking the clause would lead to a broader systemic crisis that would result in
further deterioration at the two companies. 
Neither Merrill nor its CEO, John Thain, was informed of these deliberations at
Bank of America. Lewis told the FCIC that he didn’t contact Merrill Lynch about the
situation because he didn’t want to create an “adversarial relationship” if it could be
avoided.  When Thain later found out that Bank of America had contemplated put-
ting the MAC clause into effect, he was skeptical about its chances of success: “One of
the things we negotiated very heavily was the Material Adverse Change clause. [It]
specifically excluded market moves . . . [and] pretty much nothing happened to Mer-
rill in the fourth quarter other than the market move.” 
On Sunday, December , Paulson informed Lewis that invoking the clause
would demonstrate a “colossal loss of judgment” by the company. Paulson reminded
Lewis that the Fed, as its regulator, had the legal authority to replace Bank of Amer-
ica’s management and board if they embarked on a “destructive” strategy that had “no
reasonable legal basis.”  Bernanke later told his general counsel: “Though we did
not order Lewis to go forward, we did indicate that we believed that going forward
[with the clause] would be detrimental to the health (safety and soundness) of his
company.” Congressman Edolphus Towns of New York would later refer to the Bank
of America and Merrill Lynch merger as “a shotgun wedding.” 
Regulators began to discuss a rescue package similar to the one for Citigroup, in-
cluding preferred shares and an asset pool similar to Citigroup’s ring fence. The
staff’s analysis was essentially the same as it had been for Citigroup. Meanwhile,
Lewis decided to “deescalate” the situation, explaining that when the secretary of the
treasury and the chairman of the Fed say that invoking the MAC would cause sys-
temic risk, “then it obviously gives you pause.”  At a board meeting on December
, Lewis told his board that the Fed and Treasury believed that a failed acquisition
would pose systemic risk and would lead to removal of management and the board at
the insistence of the government, and that the government would provide assistance
“to protect [Bank of America] against the adverse impact of certain Merrill Lynch as-
sets,” although such assistance could not be provided in time for the merger’s close on
January , . 
The board decided not to exercise the MAC and to proceed as planned, with the
understanding that the government’s assistance would be “fully documented” by the
time fourth-quarter earnings were announced in mid-January.  “Obviously if [the
MAC clause] actually would cause systemic risk to the financial system, then that’s
not good for Bank of America,” Lewis told the FCIC. “Which is finally the conclusion
that I came to and the board came to.” 
The merger was completed on January , , with no hint of government assis-
tance. By the time the acquisition became official, the purchase price of  billion
announced in September had fallen to  billion, thanks to the decline in the stock
prices of the two companies over the preceding three months. On January , Bank of
America received the  billion in capital from TARP that had been allocated to
Merrill Lynch, adding to the  billion it had received in October. 