The former US Treasury Secretary says the merger was necessary
The ex-US Treasury Secretary has admitted telling the Bank of America boss he might lose his job if he walked away from a merger from Merrill Lynch.
Hank Paulson warned the bank's chief executive Kenneth Lewis that the Federal Reserve could oust him and the board if the rescue did not proceed.
But Mr Paulson insisted that remarks he made were "appropriate".
Bank of America bought Merrill during the height of the financial crisis and suffered severe losses.
It had stepped in after Merrill told officials it was in severe difficulties, on the same weekend that Lehman Brothers was collapsing.
But later, when Bank of America learned of "significant losses" at Merrill Lynch for the fourth quarter, it threatened to walk away from the deal, citing a "material adverse" clause.
Mr Paulson, in prepared congressional testimony, said that the merger was in the best interest of the US and the two firms.
He added that it would have been "unthinkable" for Bank of America to walk away - a step he described as "destructive action for which there was no reasonable legal basis and which would show a lack of judgment".
The Fed has denied putting pressure on anyone to seal the deal, and Mr Paulson's comments are expected to take the pressure off the chairman off the Fed's chairman, Ben Bernanke.
Two weeks ago, Mr Bernanke repeatedly denied the accusation that he had told Mr Lewis that he would be fired if he backed out of the Merrill deal.
Nor did he instruct Mr Paulson to threaten Mr Lewis, he said.
Congressmen believe Mr Lewis's job had been threatened after he expressed second thoughts about the takeover.
Bank of America agreed to buy Merrill for $29bn (£17.5bn) last September, a deal that happened with Fed approval.
In the same weekend, the US central bank declined to bail out Lehman Brothers, which subsequently collapsed.
But Mr Bernanke told the committee that if funds from the Troubled Assets Relief Programme (Tarp), designed to rescue banks reeling from the financial crisis, had been available at the time, the Fed would have "given it a try" to save Lehman.
As the crisis in the financial sector intensified, Bank of America subsequently needed $25bn in capital injections from the bail-out fund.
The House Oversight and Government Reform Committee is investigating claims that Mr Paulson and Mr Bernanke put pressure on Bank of America to close the deal, despite Merrill's financial difficulties.
The US Treasury and Fed have been accused of "putting a gun to the head" of BoA to absorb Merrill, one of the largest holders of toxic debt.
At the start of this year, Bank of America required a further $20bn.
The bank was told by the US government after several so-called "stress tests" last month that it needed to raise $33.9bn - more than any other US bank - in order to weather the crisis.
In his testimony, Mr Paulson also said that the Bush administration's response to the financial crisis late last year was "not perfect" but had saved the US "from great peril".