Bank of America set to repay $20bn in bailout funds

Bank of America, the bailed-out US bank which bought Merrill Lynch at the height of last year's financial panic, is trying to rid itself of curbs on executive bonuses by repaying some of the government money it received to stabilise its finances.

The company received $45bn (£28bn) in taxpayer subsidy in two tranches, and argues that paying back the second tranche should be enough to free executives to pay higher bonuses once again.

The Obama administration said that banks which received extraordinary assistance from the government have to submit the pay of their top 100 earners to a "pay czar" for approval, a process which is going on now.

By paying back $20bn it received in January, when spiralling losses at the Merrill Lynch investment bank threatened to sink the whole company, BofA says it should no longer be in the category of firms receiving extraordinary assistance. The first $25bn was given to BoA at the same time as seven other major banks, at the start of a major government recapitalisation of the US banking system, which has so far helped more than 600 firms.

As part of the January rescue, BofA also agreed that the government would guarantee to cover losses on around $100bn of Merrill's riskiest assets. Although it was never formally signed, the US Treasury is insisting that the agreement includes a break-up fee of several hundred million dollars which BofA must pay as part of its exit deal.

The back-and-forth negotiations are the latest in a string of tussles that the Treasury is having as banks try to get out from government control as quickly and cheaply as possible.