Federal regulators placed Bank of America under a “secret regulatory sanction” ($) in early May, the Wall Street Journal reported this morning. The sanction, which is still in effect, requires the bank to revamp its risk and liquidity management as well as overhaul its board to have a majority of new directors.

“Rarely disclosed publicly, the so-called memorandum of understanding gives banks a chance to work out their problems without the glare of outside attention,” the Journal said. If the bank does not satisfy regulators, harsher penalties could include a public cease-and-desist order. So after the secret sanctions was imposed, six directors from B of A’s 16-person board left.

Bank of America has faced quiet pressure before. Today, former Treasury Secretary Hank Paulson will have to answer questions from the House Committee on Oversight and Government Reform about how the government pressured Bank of America to acquire Merrill Lynch. Paulson’s prepared testimony says he told Bank of America’s then-CEO Ken Lewis that he could be fired if the deal did not go through.

Other morning links:
CIT Fails to Win U.S. Bailout as Bankruptcy Looms (Bloomberg)
Mortgage Firms Struggle to Redo Hard-Hit Loans ($) (WSJ)
A Panel Is Named to Examine Causes of the Economic Crisis (NYT)
Obama Hears Dissent on Plan To Reform Financial Regulation (WaPo)
Foreclosure Scams Targeted in U.S., State and Local Crackdown (LAT)